Following a tumultuous 2020 brought on by the global coronavirus pandemic, 2021 is bringing more uncertainty to agricultural markets as the world struggles with the ongoing pandemic and begins to look toward recovery, according to several ag economists and industry insiders.
Paul Mitchell, director of the Renk Agribusiness Institute at UW-Madison, said during the Wisconsin Agricultural Outlook Forum Jan. 26. that 2021 holds promise for the agriculture industry.
This is coming on the heels of a year that saw farmers dumping milk, livestock backlogs at processors, empty store shelves, toilet paper hoarding, and a staggering demand at food banks, he said.
“2020 was ... a stressful year for agriculture, coming after several years of tight margins and low farm income,” Mitchell said. “Stress on top of stress for agriculture and a lot of related ag businesses.
“I think we’re going to be dealing with the economic, the social and personal fallout from this pandemic for years.”
Mitchell said farm income in 2020 was up 20% to 40% compared to 2019. Much of the improvement in income was due to the $46.5 billion distributed to U.S. farmers in direct payments through federal coronavirus relief programs. Of that relief funding, $1.1 billion came to Wisconsin farmers, Mitchell said.
“But this is after several lackluster years. We haven’t had a great farm income in a long time,” he said. “This year it’s up quite a bit due to the tremendous government support.”
Despite the improved income due to pandemic relief efforts, Wisconsin led the nation with 76 farm bankruptcies in the year between October 2019 and the end of September.
“I’m getting tired of saying it but it seems to be what we do right now: We file bankruptcy,” Mitchell said, adding that the number of farm bankruptcies in Wisconsin is more than twice the rate of filings in the next highest states of Kansas and Iowa. “We have a lot of farm bankruptcies.”
Mitchell pointed to a recovery in crop prices and good corn and soybean yields; land values holding steady or improving; loan delinquency rates holding steady; farm debt falling at commercial banks; and a reduced dairy farm attrition rate, which is down to below 5% after peaking at a little over 10% late in 2019, as positive signs for the farm economy going into 2021.
He said going into 2021, commodity price trends look promising, margins look profitable for some farmers, particularly in the grains and livestock, and the U.S. food system has adapted to the COVID-19 pandemic.
However, volatility in the markets because of uncertainty due to the continuing pandemic, changing consumer preferences, and uncertainty with exports keep him from being too optimistic about the rest of the year, Mitchell said.
“The outlook really is hope and uncertainty,” he said.
Mark Stephenson, director of dairy policy analysis at UW-Madison, said both the most recent U.S. milk production report and the cold storage report had what he views as bad news for the U.S. dairy industry.
Milk production in the U.S. has been increasing more than 2% a month since September, a rate that outpaces consumption nationally, Stephenson said.
“We’re producing a lot of milk,” he said. “When you get above that 1½ to 2% level, it means that we aren’t going to consume all that product; we really have to think about exporting it.
“The food need in this country is real, we’ve had programs that have tried to deal with that short-term demand out there. But we aren’t going to be able to eat our way out of this much milk, through food programs or anything else. We’re going to have to do this through exports, or we’re going to have to tap the brakes on milk production.”
The cold storage report released shortly before Stephenson’s presentation showed both butter and cheese inventory numbers increasing dramatically.
“They both turned well up this past month,” he said. “We’ve got more product available than we would probably like to have an inventory at this point in time.”
The news from those reports caused Stephenson to pull back on his optimism for 2021 milk prices a bit. He had previously projected 2021 Class III milk prices to average about $17.35.
“I think milk prices may be down as much as 30 cents a hundredweight,” Stephenson said. “And I do expect volatility. We keep getting these new reports, they’re coming in here jerking demand ideas and numbers and even supply around quite a bit, and that moves prices rapidly.”