January 25, 2021
Sizing-Up the Uncertainties Facing Agriculture in 2021, Part 2
By David Widmar
Last week we shared our list of nine key questions facing agriculture as we head to 2021. While it’s helpful to layout and discuss the issues, it’s important to push our thinking one step further. This week, we breakdown and size-up a few of the issues into forecastable questions that you can think about as the year unfolds.
There are many, many uncertainties in the farm economy, but 2020 ended on an up note. We will see if 2021 can keep the momentum going. One of the big stories of 2020 was record direct farm program payments. Few are talking about payments of that magnitude again. We think it will be useful to watch whether direct farm program payments top $18 billion in 2021. With the new stimulus bill and second round of PPP, they are off to a perhaps stronger start than many thought possible. Specifically, we are forecasting:
What is the probability of direct farm payments in 2021 exceeding $18 billion, per the USDA’s November 2021 net farm income forecast?
The major grain price rally of late 2020 and early 2021 was the other big news story in the farm economy. With both corn and soybeans needing acres to keep stocks from shrinking in 2021, the acreage battle in Spring 2021 will be closely watched. We have added several commodity price questions to AFN, but two you might want to think about are:
What is the probability of the December 2021 corn futures price exceeding $4.75 before December 1, 2021?
What is the probability of the Nov. 2021 soybean futures price exceeding $13.00 before November 1, 2021?
These would both be price levels that would add some more “juice” to the farm economy.
With the improved farm income situation and continuing low-interest-rate environment, it will be important to watch farmland values in 2021. While you might not live in Indiana, the Purdue farmland value survey is an excellent benchmark to track. You might be surprised by the size of the increase we developed the forecast question around, but if you take a look at history, those moves are maybe a bit more common than you might think.
What is the probability of top-quality Indiana farmland values increasing by more than 10% in 2021, per the June 2021 Purdue Survey?
Trade and Usage
Farmers warmly welcomed the 2020 return of China to U.S. commodity markets. While many people are worried about the technicalities of Phase 1, do not lose sight of the fact that the increased buying is helping prices. One of the big questions in 2021 will how exports unfold?
What is the probability that U.S. exports of agricultural and related products to China exceeding $35 billion in 2021?
When looking at corn usage, there is a big cloud over the ethanol line. Remember, ethanol is a significant source of usage for U.S. corn (34% in 2020). With the pandemic in 2020, gasoline usage – and ethanol by association – tumbled hard. Additionally, there have been lots of uncertainties around the implementation of the RFS. Will the new administration handle implementation differently, and what will be the impact on ethanol in 2021?
We’ll be posting ethanol-related questions and content shortly, but you can see EPA estimates and rules for 2021 will impact RINs and ethanol production.
COVD-19 & The U.S. Economy
The development of multiple vaccines for a virus that emerged so recently is pretty amazing. Now we have to distribute it and see if people will take it. How quickly the immunization proceeds will likely have a significant effect on the prevalence of the disease and how quickly the U.S. economy rebounds. Here is a question to think about:
What is the probability of the CDC reporting more than 100 million people in the U.S. initiating COVID-19 vaccination (1st dose received), as reported here, on or before April 15, 2021?
Thinking about the economy, the Federal Reserve quickly lowered interest rates in response to the pandemic. How long will those rates stay low?
What is the probability of the Federal Funds Target Rate (range – upper limit) being raised above 0.25% on or before 12/31/2021?
Acreage, Production, Ending stocks
We are putting together our estimates for corn and soybean plantings and have already seen some estimates of the principal crop acreages that made us scratch our heads. The debate will heat up in the coming months. Take some time to think about where you think things might go.
What is the probability of the U.S. planting more than 91 million acres of corn in 2021 (per the USDA’s June 2021 Acreage Report)?
What is the probability of the U.S. planting more than 91 million acres of soybeans in 2021 (per the USDA’s June 2021 Acreage Report)?
In a few weeks, we’ll be posting questions about U.S. average yields being above trend in 2021. For those curious, trend average yields in 2021 are in the neighborhood of 178bpa for corn and 50bpa for soybeans.
Wrapping it Up
One way we can improve our decision-making process is by asking better questions. Most of the time, we ask ourselves, and others, open-ended questions (i.e., “will corn prices rally”) and accept vague answers (i.e., “it’s possible”). This is a broken process. However, by asking specific questions and providing probabilistic answers – similar to weather forecasts – we can 1) track how our thinking changes over time, 2) benchmark against others’ expectations, and 3) review and score ourselves. Improving the process – by framing better questions and gathering better insights and content- was our goal in designing the AEI Premium offering and the Ag Forecast Network (AFN) decision tool.
The questions outlined above – along with others – are currently being forecasted by AEI Premium subscribers. If you’re curious about what others are thinking and up for the challenge yourself, get started by logging your forecasts, checking the consensus, and reviewing the related articles. Most importantly, stay curious.