As most will agree, 2020 has been a trying year but there is hope for the agricultural sector to drive away this black swan event that has spread chaos across the globe and for American farmers to rebound.
Black swan events are unpredictable events that have potentially severe consequences. For 2020, the black swan is the COVID-19 pandemic. During the 5thAnnual Clemson Extension Ag Outlook Conference, held virtually, featured guest speaker David Kohl said disjointed recovery for the United States and the world, coupled with trade agreement uncertainty has created an economic and financial divide in agriculture.
“Business IQ will be key to success in the 2020s,” said Kohl, professor emeritus of agricultural and applied economics, as well as a member of the Academic Hall of Fame in the College of Agriculture and Life Sciences at Virginia Tech University. “In school, you get the lesson first, then the test. In the real world, you most often get the test first, then the lesson.”
For farmers to pass the test and succeed, Kohl said they need to address critical issues such as loss of government supports, tax implications, weather extremes, loss of markets, global competition, changes in consumer habits and more. They also need to watch the rise of Asia.
“Countries in Asia and the Pacific recently formed the Regional Comprehensive Economic Partnership, or RCEP,” Kohl said. “This is the world’s largest free trade agreement.”
The RCEP, signed on Nov. 15, includes China and 14 other Asian and Pacific countries. In it are provisions for e-commerce, financial services, intellectual property, professional services and telecommunications. This partnership accounts for about 33% of the world’s economy and population. Economists believe that over time, this deal could lead to a more bolstered integration of regional supply chains in East and Southeast Asia which would boost trade and productivity.
In addition to Kohl’s presentation, the Clemson Cooperative Extension Service Agribusiness Team provided an outlook for 2021, focusing on identifying opportunities and threats for the financial success of South Carolina producers. Presentations covered corn, cotton, peanuts, soybeans, wheat, livestock, poultry and special topics on trade, small-scale animal processing and farm stress.
Adam Kantrovich, Clemson Extension ag economist, noted that despite the trade war with China, it is important for the U.S. to resolve the present situation and to return to some form of trade normalcy with China. Kantrovich also discussed the significant role economic policy plays in agriculture. He stated that adding import duties or tariffs to product prices is equivalent to a tax paid for by consumers.
Corn, cotton, peanuts, soybeans
While tariffs are hindering parts of the national agricultural economy, impacts vary depending on the product. Peanuts are primarily a domestic product, for example, and thus less affected by trade restrictions and tariffs than other crops. Nathan Smith, director of the Clemson Extension Agribusiness team, said as far as the peanut situation goes, everything is up…except prices.
Reports for 2020 show U.S farmers planted and harvested 17% more peanut acres than 2019. Yields, as well as peanut use, also are up.
“Peanut butter is a comfort food for many people,” Smith said. “Since the COVID-19 pandemic hit and we’ve found ourselves spending more time at home, reports show people are buying more peanut butter and other peanut products to eat.”
Strong domestic use should continue into 2021 with the pandemic having a positive impact on peanut butter sales. Growers can expect prices to remain between $425 and $450 per ton in the short term, with production looking a little smaller than expected but quality looks good. Prices are projected to remain low.
“It’s going to take a major shock to production or trade to move peanut prices up over the next couple of years,” Smith said.
As far as cotton goes, Smith reported planted acreage for 2020 decreased about 37% in South Carolina to 190,000 acres as compared to 300,000 acres planted in 2019. Average yield for South Carolina cotton is projected to be 843 pounds per acre, up 4.2% from 809 pounds per acre in 2019. Planted cotton acres are down about 11.8% across the U.S., with 12.12 million acres. U.S. cotton yield is projected to be a record 911 pounds per acre, but harvested acres are down 22.5% to 9 million acres.
“The current global economic outlook suggests a slow recovery,” Smith said. “Cotton acres are expected to remain the same or have a slight increase with the drought picture leading potentially higher prices.”
Cotton prices have the potential to rally in the short term if cotton sales and commitments to China increase.
“World fundamentals point to an increase in global stocks,” Smith said. “If this happens, we can look for pricing opportunities in the mid-70 cent range.”
Baseline price projections for corn and soybeans suggest long-run prices for soybeans will be more than $10 per bushel for soybeans, about $4 per bushel for corn and a little more than $5 per bushel for wheat. Scott Mickey, Clemson Extension Agribusiness associate, said constructing a marketing plan will help ensure sellers get the best prices.
“This plan is similar to a plan for building a house,” Mickey said. “It includes developing the blueprint, laying the foundation, framing up the plan and, then, adding a roof and finishing touches.”
To ensure the plan continues to work, Mickey said it should be monitored and adjusted as the year progresses.
Meat processing and exports
Steve Richards, Clemson Agribusiness Extension associate, said the COVID-19 pandemic continues to cause local meat supply chain issues and meat processors are trying to catch up.
“South Carolina’s situation reflects what is occurring in many other states,” Richards said. “Local livestock producers have been swamped with calls from customers wanting to buy their meat products. Consequently, most local meat processors have waiting lists six to nine months long, with some backlogs stretching out for more than a year.”
Preliminary findings from an Agribusiness Team feasibility study of livestock producers and local meat consumers show there is a need to expand inspected meat processing capacity for beef and poultry products in South Carolina. The next phase of the study explores expanding existing meat processing facilities, reopening closed facilities and opening new facilities. For more information about the status of this study, please contact Steve Richards at email@example.com or Chad Carter at firstname.lastname@example.org.
The outlook for the beef cattle and pork industries is full of pandemic-related uncertainties. Bernt Nelson of the Clemson Extension Agribusiness Team said Japan, South Korea and China markets account for about half of U.S. beef exports.
“U.S. production has reflected a 5% increase in the breeding herd,” Nelson said. “Exports to China accounts for as much as 8% of overall U.S. pork production use. We are in an unprecedented situation with China re-building its herd after African Swine Fever and facing the consequences of the pandemic. We can expect to see volatility in the hog market for 2021”.
China’s swine herd was decimated by African Swine fever. These losses increased China’s reliance on imported meat. Pork prices for 2020 are down from 2019, dressed weights are up and plants are running to catch up on back logs. Pork exports are looking good and improving by the day. But, as China rebuilds their herd, Nelson said their imports will drop off.
As for the beef industry, 2021 looks to continue in a positive direction but will face many obstacles created by COVID-19. Nelson said feed costs are up from last year. Cash for live animals traded at a disappointing $1.10. On the bright side, Mexico has begun purchasing U.S. beef pushing weekly beef export sales to 46,000 metric tons resulting in a marketing year high. China’s beef imports have sky-rocketed since March when COVID-19 really took hold. These imports have remained, and orders continue to be made.
Livestock owners need to expect the unexpected. Managing input costs can help, said Matthew Fischer, Clemson Extension agribusiness agent.
“Healthy plants make healthy animals,” Fischer said. “Forage production is an important part of a cow/calf operation. Livestock owners should be mindful of costs associated with growing, maintaining and harvesting forages. Livestock producers should research input costs and capitalize on favorable pricing, while ensuring the health of animals, as well as pastures.”
The Clemson Agribusiness Team, in conjunction with the Livestock and Forages team, is in the process of publishing a new model designed for cow-calf operation budgets for South Carolina cattlemen. These should be available soon, Fischer said.
As for the weather, South Carolina farmers can look for a drier winter. Eric Snodgrass, senior atmospheric scientist at Nutrien Ag Solutions, said the winter forecast from the National Oceanic and Atmospheric Administration (NOAA) shows warmer, drier conditions across the southern U.S. and cooler, wetter conditions in the northern part of the country.
“Because of a La Niña climate pattern in place, southern parts of the U.S. may experience drier conditions during the coming winter months,” Snodgrass said. “In addition, warmer-than-normal conditions are expected to extend across the Southern tier of the U.S. from the Southwest, across the Gulf states and into the Southeast.”
Seasonal changes in precipitation and temperature affect soil moisture and other characteristics needed in farming. Information from the United States Department of Agriculture shows rising temperatures have resulted in longer growing seasons for crops, changes in precipitation patterns and an increase in extreme precipitation events. Because of the sensitivity of agriculture to weather and climate conditions, these impacts can have substantial effects production and profitability.
Dealing with stress
As the black swan of 2020 creates issues across the U.S. economy, farmers and their families may find themselves under tremendous stress.
“This has been a very trying year for most of us,” Mickey said. “People who usually make good decisions may find themselves unable to do so.”
Studies have shown stress is often easier to detect in others than in oneself.
“Check on family members, co-workers and neighbors to see how they are doing during this time,” Mickey said. “And don’t be afraid to reach out for help for yourself if you are under significant, prolonged stress.”