2021 U.S. agricultural market outlook: FAPRI-MU Report #01-21

ABSTRACT

The COVID-19 pandemic upended agricultural markets, contributing to a dismal outlook for the farm economy in the spring and summer of 2020. A series of emergency support programs provided record government payments to farmers, and prices for many commodities rebounded in the final months of the year, resulting in a large increase in 2020 net farm income. Looking ahead, the outlook is uncertain, but certainly more optimistic than it was a few months ago. These baseline projections for agricultural and biofuel markets were prepared using market information available in January 2021. Macroeconomic assumptions are based primarily on forecasts by IHS Markit, which suggest a recovery in the U.S. and global economies. The baseline reflects current policies, meaning it incorporates the various assistance programs that had been enacted prior to January 2021, but does not reflect any subsequent policy changes. Commodity markets will continue to be volatile. We use our models to develop a range of projected market outcomes that takes into account some major sources of uncertainty about future supply and demand conditions. In some of the resulting 500 outcomes, prices, quantities and values are much higher or much lower than the averages reported here. Some key results: * Major crop prices retreat from recent peaks, but remain above the prices of 2015-2019. For the crop to be harvested in the fall of 2021, projected corn prices average $4.06 per bushel and soybeans average $10.61 per bushel. * Increasing imports by China explain much of the recent strength in grain and oilseed markets. If China's purchases continue at the recent pace, U.S. exports and market prices could be higher than projected here, but there is downside risk as well. * Higher prices and assumed normal spring planting conditions allow 2021 total area planted to major crops to rebound to 2018 levels. That could allow planted acreage for corn, soybeans and wheat to all expand in the same year. Projected soybean acreage exceeds 90 million acres. * Average prices for livestock and poultry increase in 2021 as the sector returns to more normal operating conditions after the plant closures and other disruptions of 2020. * After the pandemic reduced driving and fuel use in 2020, projected ethanol production and use increase in 2021, but do not immediately rebound to pre-COVID levels. * Crop insurance and the price loss coverage (PLC) program account for most projected support to the farm sector. These programs provide far less support than the market facilitation program (MFP), the coronavirus food assistance program (CFAP) and the paycheck protection program (PPP) provided in 2020. * The final rounds of ad hoc assistance payments push total outlays on selected mandatory farm-related programs to a record $51 billion in fiscal year (FY) 2021. Without this additional assistance, the total drops back to an annual average of $23 billion between FY 2022 and FY 2030, only slightly above the FY 2015-FY 2019 average. * Net farm income increased to $121 billion in 2020, the highest level since 2013, primarily because of $46 billion in government payments. Net farm income drops to $112 billion in 2021, in spite of a $25 billion increase in crop and livestock receipts. Reduced government payments and higher production costs explain the drop in net farm income. * Higher levels of net farm income support an increase in land and farm asset values in 2021. The result is the first slight dip in the farm debt-to-asset ratio since 2012. In later years, declining real net farm income and an eventual increase in interest rates put pressure on asset values and cause the debt-to-asset ratio to resume its increase. * Consumer food price inflation increased to 3.4% in 2020, in part because of a wider gap between producer prices for livestock and consumer prices for meat. Food inflation moderates to 2.1% in 2021 as conditions normalize, and food inflation is similar to overall inflation in subsequent years.