Forces that will shape the U.S. rural economy

While vaccines for COVID-19 bring optimism for a more prosperous year ahead, a report from CoBank on the forces that will shape the U.S. rural economy indicates a significant economic recovery is unlikely before the middle of 2021.

CoBank, a cooperative bank serving vital industries across rural America, released their 2021 Year Ahead Report last week. The availability and dissemination of vaccines will be a driving factor in releasing the pent-up consumer demand into the second half of 2021.

“The coming year will be a recovery year for most Americans and the businesses that make up the U.S. economy,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “The early part of the year should look very different than the latter, but in total, economic growth is estimated to be about 4%, following a retreat of roughly 4% in 2020.”

Confidence in GDP forecasts has increased since mid-2020, but the global recovery has remained uneven. While China has recovered the fastest from the pandemic, Europe has suffered the most, and recent upticks in cases and deaths across Europe and the Americas and no clear guidance on vaccine dissemination will continue to quell the recovery.

The U.S. should see a post-COVID bounce in 2021, but it is likely to come later in the year. Roughly 10 million Americans who lost their jobs early in the pandemic have yet to find work, and many of them are receiving some form of public support. Many businesses, especially small businesses, will continue to struggle to stay open, but optimism should spur investment in the first half of the year.

In the U.S., the Federal Reserve was able to make moves to stabilize the global financial system within weeks of the start of the pandemic. As the Biden administration takes over, they are likely to face a Congress that will produce more moderate legislation, as the Democrat majority shrunk to no more than nine seats and the control over the Senate will be determined in the January 5th Georgia runoff races.

Even if the Democrats win both seats, their majority will only be secured by the vote of Vice President Kamala Harris when necessary. The response to COVID-19 will be the first priority, but the administration will also be working to re-engage with the rest of the world, invest in infrastructure, address social justice, climate change, and trade.

In rural America, higher commodity prices and low interest rates will help buffer net farm income in 2021. The Federal Government, through USDA programs, funded more than one-third of net farm income in 2020, and those programs are expected to greatly diminish. Specialty crop growers and the supply chains that deliver fruits, nuts, and vegetables have had to adapt to historic shifts as the pandemic caused thousands of restaurants to permanently close.

Many more restaurants are expected to shutter their doors in the first half of 2021, further destabilizing the supply chain. More consumers eating at home has expanded retail sales in grocery stores and provided another option: home delivery.

The outlook for grain is more favorable than a year ago, although carry has evaporated with the inversion of futures prices. The outlook for farm supply cooperatives is positive for 2021 following a very orderly harvest, rising grain prices and decent farm liquidity.

The ethanol outlook is stable but guarded, with considerable growth and margin opportunities favoring ethanol co-products vs. fuel. After experiencing a near 50% reduction in demand during mid-March 2020 to mid-April 2020, fuel ethanol in the U.S. has recovered to about 90% of pre-COVID levels.