Export markets remain a key driver of growing sales of ag products and a subsequent boost in crop prices.

But what about domestic demand?

Recent government and industry projections point toward a rebound of the U.S. economy in 2021, although most likely not until the latter half of the year.

Pent-up consumer demand could return at some point this year

Dan Kowalski

The Federal Reserve forecast U.S. gross domestic product to recover to a 5% gain this year after tumbling 6.5% in 2020 due to the various economic impacts of the coronavirus pandemic. It also predicts unemployment will decrease from 9.3% last year to 6.5% in 2021.

The economic projections were made with the general expectation of an economic recovery beginning in the second half of the year, supported by interest rates remaining near zero, the Fed noted.

CoBank’s 2021 Year Ahead Report, released late last month, predicts a similar economic recovery pattern in the U.S. The speed of the recovery hinges greatly on the availability, dissemination and reach of COVID-19 vaccines, which could unleash a burst of pent-up consumer demand by the second half of the year, according to the report.

“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.”

Here are factors to watch and projections from CoBank’s report.

COVID is still the economy. Much of the year’s economic trajectory will depend on fiscal policy decisions made over the next few months, the CoBank report noted. Roughly 10 million Americans who lost their jobs amid the pandemic have yet to find work, and many are receiving some form of public support.

Farm economy in flux. Higher commodity prices and low interest rates look to be key buffers to net farm income this year, with the federal government’s role in farm payments expected to greatly diminish. The federal government was the source of about one-third of U.S. net farm income in 2020.

Specialty crop farmers meet demand. With thousands more restaurants expected to permanently close through winter as COVID-19 cases surge, the specialty crop sector continues to adapt to historic shifts in logistics and supply chains as people eat more at home.

Biofuels market could stabilize. After experiencing a near 50% reduction in demand from mid-March to mid-April, fuel ethanol use recovered to about 90% of pre-COVID levels. The ethanol outlook is stable but guarded, with considerable growth and margin opportunities favoring ethanol coproducts versus fuel, according to the report.

Higher feed costs to challenge livestock sector. A rising cost environment, driven by higher feed costs, will challenge the dairy and animal protein sector’s ability to return to pre-COVID margin levels in 2021. The sector, supported by a surge of exports, enters this year with greater uncertainty in foodservice demand as restaurant closures are expected to continue in the months ahead, CoBank noted.