The speed of the economic recovery will largely depend on the availability, diffusion and reach of COVID-19 vaccines, pushing the expected explosion in pent-up consumer demand in the second half of 2021, according to a full report CoBank Knowledge Exchange Division Outlook for the Year Report.
“The coming year will be a year of recovery for most Americans and the businesses that make up the American economy,” said Dan Kowalski, Vice President of the Knowledge Exchange Division of CoBank. “The start of the year is expected to be very different from the latter, but overall economic growth is estimated at around 4%, following a decline of around 4% in 2020.”
The CoBank 2021 Outlook Report examines 10 key factors that will shape the agriculture and market sectors that serve rural communities across the United States
Global economy: an uneven recovery ahead
Against all hopes that COVID will fade away in 2020, it will continue to lead the global economy in 2021. The global economic recovery has been very uneven in 2020, and given the current upsurge in cases of the virus, we expect that to be so. will remain the case in 2021. Our confidence in the GDP forecast has increased since mid-2020, but uncertainties around vaccine release and use mean that the timing of the recovery is still extremely difficult. Of all the major economies, China has recovered the fastest from the pandemic and will end 2020 in a remarkably good economic position while Europe has suffered the most. Perhaps one of the most lasting impacts of COVID will be the mountains of debt absorbed by most governments around the world.
US economy: COVID is still the economy
A post-COVID rebound is coming to the United States in 2021, but it is unlikely to happen anytime soon. Much of the economic trajectory for the year will depend on fiscal policy decisions taken over the next two months. About 10 million Americans who lost their jobs at the start of the pandemic have yet to find work, and many of them are receiving some form of public support. If and how Congress chooses to fund additional relief, it will impact the speed of the recovery. Throughout the first half of the coming year, many companies will just try to keep the doors open. Optimism, however, should boost investment and investment decisions in the first half of the year. Opportunistic companies will try to plan the return with new investments in the broader leisure and service sectors. However, not all things will go back to the way they were before. Some industries may never fully recover.
Monetary policy: less dramatic but no less critical
If there is an economic hero in the midst of the pandemic, it is most certainly central banks. The Federal Reserve in particular stabilized the global financial system in the weeks following the pandemic, and it continues to provide massive amounts of economic support. The role of central bank policy in 2021 should be less dramatic, but no less important. With short-term interest rates firmly at zero, the Federal Reserve will manage a few levers over the coming year, arguing for fiscal policy and keeping a close eye on long-term rates and inflation, among others. .
Government of the United States: radical changes in leadership
As the 117th Congress begins, the political landscape is still somewhat uncertain. The transition of the Biden administration is proceeding apace. The House will remain Democratic with a reduced majority of no more than nine seats. In the Senate, control will be decided by a second round on January 5 for the two seats in the Georgia Senate. The narrow margin of power within Congress will moderate the legislation. The cabinet of the Biden administration will be more diverse than that of President Trump, but it is unlikely to move to its far left, as indicated by the selection of former USDA Secretary Tom Vilsack for this. role. The COVID response will be the first task, followed closely by the response to the economic impact of the pandemic. The president-elect’s other priorities – re-engaging with the rest of the world, investing in infrastructure, tackling social justice, climate change and trade, will all depend on containing the virus and getting the economy back on track.
U.S. Farm Economy: Strong End of 2020 Boosts Potential
Higher commodity prices and low interest rates will be a significant financial buffer to net farm income in 2021, as the role of the federal government in farm payments is expected to decline significantly. The federal government was the source of more than a third of U.S. net farm income in 2020, with the USDA providing extraordinary payments through various programs. Crop prices were supported by robust Chinese purchases and dry growing conditions in major producing regions of the world. Historically low interest rates will lower borrowing costs for farmers and ranchers. The value of farmland, which is an important source of equity for farmers and ranchers, is also expected to remain stable in 2021.
Specialty crops: preparing for further changes in consumer demand
The specialty crops industry will continue to adapt to historic changes in logistics and supply chains in 2021 as the COVID-19 pandemic forces consumers to buy more food at retail and less in restaurants. With thousands more restaurants set to close permanently during the winter months as COVID-19 cases increase, specialty crop growers and supply chains that deliver fruits, nuts and vegetables will have to continue. to adapt to a consumer who eats more at home. Some producers, packers and processors have been successful in scaling up or redirecting products to retail channels such as grocery stores and home delivery of food boxes. However, the heavy financial losses resulting from the loss of catering contracts will ultimately result in the rationalization of some processing assets and production area.
Cereals, agricultural supply and biofuels: the recovery underway
Cereals and agricultural supply sectors enter 2021 on a reasonably strong footing, supported by rising commodity prices, farmer stability and favorable domestic use of fuels, feed and food , as well as strong export demand, especially from China. The outlook for grains is more favorable than a year ago, although the carry has evaporated with the reversal in futures prices. The outlook for agricultural supply cooperatives is positive for 2021 following a very orderly harvest, rising grain prices and decent farm cash flow. The outlook for ethanol is stable but cautious, with significant growth and margin opportunities favoring ethanol co-products over fuel. After experiencing an almost 50% reduction in demand between mid-March 2020 and mid-April 2020, fuel ethanol in the United States has returned to about 90% of pre-COVID levels.
Dairy and animal protein: higher food costs and restaurant restart
A rising cost environment resulting from rising feed prices will challenge the ability of the dairy and animal protein industry to return to pre-COVID margin levels in 2021. Corn and corn prices Soybean meal hit multi-year highs, with forward curves pointing to even higher costs in the coming month. China’s rebuilding of the country’s pig herd challenges its appetite for foreign protein in 2021 as supplies increase. The US dairy sector is expected to benefit from the rebound in Chinese pork production with dry whey used as a protein supplement in pig feed rations in China. Nationally, the animal protein and dairy sectors will enter 2021 with even greater uncertainty over the demand for foodservice as COVID-19 cases reach new heights and restaurant closings are expected to rise in the future. arrow.
Rural electricity: from reactive to adaptive
The common need to turn a corner, from responding to a pandemic to adapting to the market, opens the door to a more decisive response by US electricity providers to changing market conditions. The call to action is amplified by policy changes, the costs of new technologies and consumer demands, all of which are working together against an unchanged pace of energy transition in 2021. Lazard’s annual report Discounted energy cost analysis The report marked a milestone for the industry, as solar power is now proclaimed the cheapest form of energy in history. So cheap, in fact, that it’s now cheaper to build new solar power plants than to run coal-fired power plants. The CEOs of Business Roundtable recently released their strongest message to date on energy transition, saying tackling climate change is now a business imperative for US companies.
Rural communications: large spending unlikely, but regulatory change is
With a new president and a likely divided Congress, we expect a good stalemate in Washington in 2021. It is likely that any stimulus related to COVID will focus on short-term economic needs rather than investing in projects that put years of producing results. This leaves the Federal Communications Commission (FCC) as the remaining institution in Washington to adopt policies that will help rural communications providers. In 2020, the FCC hosted its Citizen Broadband Radio Service (CBRS) spectrum auction which was much more rural-friendly than any of its previous auctions. And as a result, rural operators are now able to build carrier-grade fixed wireless networks at significantly reduced costs.
Read the full report, 2021 The Year Ahead: The Forces Shaping the U.S. Rural Economy.