After all that was 2020, the AFBF Economics Team previews what 2021 could look like for livestock and crop markets.
The headline that took up almost all of 2020 was COVID-19. With a new year ahead of us, we turn our attention to what 2021 will have in store for crops and livestock; the outlook is brighter for both ag sectors, but there could be hiccups along the way.
2021 Animal Protein Production Forecasted to Increase
During the height of the pandemic’s impact on packing plants in the late spring, very few people would have predicted a near-normal end of the year, at least in terms of normal production levels. At the worst of it, beef and pork weekly production were down about a third from 2019 levels, plants were closing on a daily basis due to coronavirus outbreaks, and a very grim picture was coming into focus for protein and livestock markets. However, when all is said and done, we are expecting a roughly 1.5% increase in 2020 for meat and poultry production. This is primarily driven by pork, up around 3%, and broilers, up about 1.5%, as beef production largely held steady. Moving forward, meat and poultry production is forecasted to increase by almost 1 billion pounds, or 1%, in 2021. This is again driven primarily by increases in pork and broiler production. Pork production will continue to expand, but at a slower pace than the previous few years. Beef production is forecasted to decline by roughly 1%, based on a slight cyclical decline in cattle slaughter combined with carcass weights falling from record 2020 levels. On the bright side, this reduction in supply is price supportive, resulting in a modestly higher cattle price forecast. Of course, any forecasts at this point are subject to a great amount of uncertainty, particularly in the first half of the year.
Drought and Rising Feed Costs to Negatively Impact Livestock Producers
At the end of 2020, nearly 50% of the continental U.S. fell under D1-D4 drought conditions, with much of this dryness covering key cow/calf regions of the country. When including D0 areas (D0 stands for abnormally dry), roughly two-thirds of the U.S. is experiencing dry conditions. Weather plays an important role in the timing of marketing cattle, and drought conditions combined with deteriorating pasture and rangeland conditions resulted in some early weaned animals this year. In addition to worsening pasture and forage conditions, feed costs have been surging over the last several months on the back of rallies in the grain markets as a result of Chinese feed demand and South American weather conditions. March 2021 corn contracts have topped $4.80/bu and have skyrocketed the last few weeks. USDA’s World Agricultural Supply and Demand Estimates show prices for corn, soybean meal, and sorghum significantly jumping for the next marketing year. Hay prices finished out the year strong and deteriorating forage conditions push prices higher. Even with projected modest gains in livestock prices, livestock-to-corn price ratios are falling as livestock prices are lagging the pace of corn price increases. While not a perfect measure of profitability, falling ratios do indicate a more challenging profit environment from a cost of gain perspective. However, a bright spot for livestock producers continues to be strong demand, both in domestic markets and export markets.
2021 USDA Acreage Expectations
For corn and soybeans, supplies are getting tighter and global demand for U.S. crops is increasing. These two events are pushing ending stocks lower and prices are rising as a result. This is the first time since 2013 that corn prices rose above $4.00. The December WASDE had corn at $4.00 per bushel and corn is heading closer to $5.00 in some markets. It was the first time since 2014 that soybean prices rose above $10.50. The December WASDE has the soybean average farm price at $10.55 per bushel, while markets are trading soybeans around $13.00 per bushel.
Figure 3 shows historic ending stocks compared to historic average farm prices.
Rising prices are a strong incentive to plant corn and soybeans in 2021. USDA released actual and projected crop acre estimates for major U.S. crops. These are baseline projections that assume business as usual for U.S. commodities and do not include things like external weather or policy shocks. For soybeans, planted acres are expected to jump 7% in 2021, from 83 million acres to 89 million acres, and sit at 90 million acres projected through 2030, according to USDA.
For corn acres, the 91 million acres planted in 2020 was the highest since 94 million acres were planted in 2016. The record was 97.3 million acres in 2012. However, with the anticipated increase in soybean acres planted, the shift from corn to soybean acres is evident in the projection that corn acres in 2021 will lower slightly to 90 million acres and sit between 90 million and 89 million acres through 2030, according to USDA.
Combined, if these projections are realized, the total corn and soybean planted area would reach 179 million acres. This would be the second-highest acreage on record, behind 2017 when 180 million acres of corn and soybeans were planted.
Wheat acres from 2020 to 2021 are projected to rise 4% from 44.3 million to 46 million acres. Global supply continues to be a hurdle in that market, but lower wheat inventory could lead to higher prices. Additionally, Russia recently announced an export tax on its wheat that may make the U.S. crop more attractive to global buyers.
Cotton acres are projected to lower slightly, about 6%, from 13.5 million acres in 2020 to 11.9 million in 2021, despite the recent increases in global purchasing of cotton. However, through 2030, cotton planted acres are anticipated to rise marginally to 12.8 million acres in 2030, backed by expectations of rising exports and decreasing stocks.
Figure 4 shows USDA’s actual and projected crop acreage estimates.
Keeping Commodity Trade Momentum Entering Into 2021
Largely driving the decrease in ending stocks and rising prices is an increase in exports, and, particularly, corn exports to China. China has imported more U.S. corn in 2020 than ever before, including more than the 7.2 MMT corn tariff-rate quota. In the first 11 months of 2020, China has reported a record 9 MMT in corn imports.
It’s not just corn that China has imported in bulk, and the corn it’s buying is not just from the U.S. China is looking for livestock feed any way it comes to rebuild its hog herd, which was destroyed by African swine fever. China’s world imports of sorghum are up 89% from 2019, while all global corn imports to China are up 117% from 2019. For barley, China has imported 17% more than in 2019 and 58% more wheat, plus 40% more cotton than in 2019.
Soybean imports are also rebounding from the impacts of African swine fever. Compared to 2019, China’s global imports of soybeans are up 1% and the 100,000 MT the country is expected to import will be a record high.
Maintaining this global demand will help keep prices on their current high. Even further, U.S. commodities look more attractive than those from other typical trade partners as the U.S. trade-weighted dollar has fallen to its lowest level since mid-2018. Competitors like Brazil face drought-stricken crops, while Argentina just suspended corn exports until March 1 to ensure ample domestic food supplies.
Figure 5 shows China’s pace of select commodity imports.
2020 was a very challenging year for animal processing, and at the worst of it very few would have predicted that we would have ended the year potentially producing over 1% more meat and poultry than we did in 2019. Looking forward to 2021, forecasts show the livestock industry building on that momentum and potentially increasing production by another 1%. This uptick is primarily driven by pork and poultry as beef production is forecasted to see a slight year-over-year decline. Ongoing drought issues and deteriorating pasture and forage conditions are likely to contribute some to this decline and increasing feeding costs are going to present a challenge for all livestock producers.
Crop producers were riding out price-highs as 2020 came to a close, bringing an optimistic end to a volatile year. In these early days of 2021, producers will consider current and future price expectations when deciding what to plant, as well as global demand strength for U.S. commodities, compared to what competitors are able to export themselves. U.S. commodities are bullish with this increase in demand, but bears are quick to point out that too-high prices may turn away future buyers searching for something cheaper. ”Approach with caution” as these highs may not last forever, but they certainly bring a much-needed reprieve to farm country.