The latest Quarterly report released by CoBank’s Knowledge Exchange shows optimism on the horizon for the U.S. economy. Even though the COVID-19 pandemic still dominates the economy and almost every aspect of daily life, the rollout of several vaccines will help get things back on track.
“Without question, there are difficult months still ahead. COVID cases are still surging and the events of Jan. 6 have rattled the country, raising the question as to whether more violence will erupt,” said the report’s authors. “But the second half of the year looks increasingly positive if vaccine uptake advances as hoped.”
Crop growers in grain-related industries are riding a wave of profitability not seen in years, but the reverse is true for livestock producers as they struggle to deal with the sudden increases in cost.
Macro outlook
A change in administration is likely to increase the probability of more COVID aid and other fiscal spending, which is projected to increase expectations for 2021 GDP growth, according to Economist and Vice President of CoBank’s Knowledge Exchange Division Dan Kowalski.
However, the slower-than-expected rollout of the vaccines means it will likely be summer before any real progress is made with the economy. Once the majority of the country is vaccinated, the second half of the year is expected to boost the economy roughly 4.5-5.5 percent.
“We also believe that while the economic outlook has improved, significant risks still remain,” Kowalski said. “They include the potential for more geopolitical crises, increased regulation, worsening conditions in commercial real estate and small business solvency, a slower than expected receding of the pandemic, and persistence in high rates of long-term unemployment.”
Kowalski noted one concern in the labor market is U.S. retail sales have increased 7 percent above pre-pandemic levels, while employment in the “goods” sector still lags early 2020 levels by 4 percent. Some of the jobs have shifted to the warehouse and transportation sector to account for the increased demand for home deliveries, but not enough to offset the decline.
“There will be scars and impediments to recovery this year. But in total, the U.S. economic outlook is brighter today than it was at the start of the year, and we can all be thankful for that,” Kowalski concluded.
Corn prices
Over the past three months, corn prices rose 27 percent—a level not seen in over five years. The increase in price came from smaller-than-expected production, strong domestic demand, and strong demand from China, which has actually been following through with actual grain shipments. La Niсa impacts in Argentina and Brazil led to smaller plantings and shifted demand to the U.S.
For the current marketing year beginning Sept. 1, China accounted for 70 percent of corn exports. The increased purchases are a result of the country trying to rebuild its hog herd from being wiped out by African swine fever. A 6 percent decrease in the U.S. dollar relative to the yuan gave China leverage in buying power, even with increased prices.
Beef demand
Beef demand was still high in the fourth quarter despite rising COVID cases and restaurant closures. The beef cutout made a strong rally in November as consumers switched to beef for smaller holiday gatherings. Beef packers also continue to see strong margins while producers and feeders manage rising feed costs, said economist Will Sawyer.
Full demand in the food service sector likely won’t occur until the second half of 2021, following successful vaccine rollouts.
Weather conditions worsened during the fourth quarter and over 40 percent of the U.S. is now experiencing some type of drought. Hay is available but corn prices have skyrocketed and are expected to climb 29 percent through 2021.
“However, cattle weights continue to come off the pandemic highs of 2020, which should tighten supplies and offer price support through the challenging feed cost environment ahead,” Sawyer noted. — Anna Miller, WLJ editor
