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Ag Economy

Farm Economy

The National Economy

The impact of the COVID-19 pandemic on the U.S. economy in 2020 was profound and something we have simply not seen before in modern times. After a relatively normal couple of months in January and February, the economy went into free-fall as businesses, schools, entertainment venues, and virtually any public gathering place shut down or sharply reduced capacity. First quarter GDP growth came in at -5.0%, but the real impact was felt in the second quarter which showed a staggering -31.4% contraction. By Q3 we saw the gradual reopening of many businesses, and GDP bounced back by 33.4%. Official fourth quarter numbers are not yet in as of this writing, but advance estimates indicate that Q4 GDP growth will come in around 2.8%, leaving the net for the year at -3.6%.1

The economic impact of the pandemic has been highly variable by industry. While nearly every business has been affected to some extent, many “essential” sectors, such as agriculture, grocery stores, healthcare, and some others have seen business volumes increase. Meanwhile, sectors such as restaurants and bars, entertainment venues, travel and tourism, brick-and-mortar retail, and others have suffered tremendously. Depending on local conditions and regulations, many “non-essential” businesses have reopened, but sales are generally down, and some have permanently closed. While we still have yet to see the full fall-out of the COVID recession, retail and restaurant bankruptcies in 2020 hit the highest levels in more than a decade.2  As we enter 2021, most businesses are open, but some, such as those in the travel sector, will have a long road to full recovery.

While overall consumer spending decreased in March through May, it has since recovered and showed a gain of 4.1%, year-over-year, as of November 2020. Much of that spending has shifted closer to home as a result of the pandemic. Home and garden retailers and service providers have seen an increase in demand, as have many agricultural retail businesses which offer local recreational opportunities.

In the labor market, unemployment surged from a 50-year low of 3.5% in February, to 14.7% in April – a level not seen in the post-WWII era. It has since sharply declined as many furloughed workers have been recalled, reaching 6.7% in November. While job recovery continues it has slowed as economic growth has tapered, and the remaining jobs lost due to COVID-19 may be slower to come back.3

A significant factor in the economic recovery has been an unprecedented level of government stimulus. Thus far, the U.S. government has made roughly $2.6 trillion in new funding available for direct payments and to federal agencies for pandemic response, and made an additional $902 billion available in tax relief for a total boost of $3.5 trillion. This represents nearly three times the total economic stimulus deployed for the 2008 financial crisis.4

We enter 2021 with a great deal of uncertainty, which makes economic predictions nearly impossible. While the approval and deployment of COVID-19 vaccines holds great promise, we have already seen problems in distribution and a slower-than-expected rollout to early recipients. How quickly the general population can be vaccinated and how effective this will be at ending the pandemic remains unknown. Meanwhile, the virus continues to spread in increasing numbers and hospitalizations have surged in many areas, prompting new pressure for states to issue stay-at-home orders. The level of government spending will almost certainly decline in 2021, which will reduce the amount of stimulus to the economy. While there is some indication of pent-up demand from consumers who have been stuck at home, unemployment remains elevated, many businesses continue to operate at reduced capacity, and bankruptcies and closures continue. While 2021 is likely to be a better year than 2020, the severity of the hangover from COVID-19 and the long-term fallout to the business landscape is something that remains to be seen.

International Trade

With the COVID-19 pandemic occupying the attention of most nations, trade generally took a back seat in 2020. Still, there were some developments.

The US-Mexico-Canada Agreement (USMCA) took effect on July 1, 2020 after Canada ratified the agreement in March. The agreement generally continues the major provisions of its predecessor, NAFTA. It contained some changes to the treatment of automobiles, intellectual property, and most notably for agriculture, promised greater access for U.S. producers to the Canadian dairy market, a provision that was controversial in Canada. There has already been conflict between the U.S. and Canada on this provision, with the U.S. alleging that Canada has failed to allow the agreed access. The U.S. Trade Representative initiated “official consultations” with Canada on December 9, the first step in dispute resolution under the USMCA agreement.5

The US-China “Phase one” trade deal helped boost Chinese imports of U.S. agricultural goods. While China’s purchases remain well short of the deal’s ambitious goals, their imports of soybeans have increased 18%, corn imports are up 97%, sugar increased 28% and wheat imports increased by 163% compared with 2019. The outlook is for China to continue it’s aggressive buying of U.S. agricultural commodities in 2021, as its pig herd recovers from African Swine Fever, and its grain inventories have shrunk.6

On December 30, the U.S. government increased tariffs on a number of European Union products including aircraft parts, wines and spirits. The EU is expected to retaliate against US imports, and could target some agricultural products. The escalation relates to a long-running dispute over US subsidies to Boeing, and EU subsidies to Airbus.7

All-in-all, despite various trade disagreements and disruptions related to COVID-19, U.S. agricultural exports increased slightly (+2%) in 2020 compared to 2019, although they remain below the peak year of 2014.8

1 The Conference Board
3 U.S. Bureau of Labor Statistics
4  McKinsey & Company Insights
5 Farm Journal
6 Successful Farming
7 Office of the U.S. Trade Representative
8 USDA Foreign Agricultural Service