My neighbor fired his shotguns and a small cannon to scare off the spirits of 2020 on New Year’s Eve during a downpour. I am sure there were other individuals across the globe performing similar rituals and activities to officially put 2020 in the rear-view mirror. As we plan for 2021 and beyond, what are some of the elements that need to be elevated in the playbooks of agriculture producers and industry strategists? Hopefully, the number 21 will be lucky like in some playing card and casino games. Of course, only time will tell.
This year we will continue to see more economic and military tensions between the U.S. and China. One only has to observe Australian trade tensions with China as a precursor to what may come. Medical professionals and researchers in Australia have demanded that China become more transparent regarding COVID-19. In return, China placed tariffs and sanctions on agriculture products and other commodity goods, which account for over 33 percent of Australia’s exports. The one exception is iron ore, which China needs for its manufacturing and infrastructure projects. The result of this confrontation is sending signals of China’s power to other economies around the world. Will the new administration develop strategies with other nations to place pressure on China, which has utilized strong arm type tactics? It will be interesting to see the outcomes to agriculture trade with the U.S. and other nations after China rebuilds its pork and other protein sectors. A message to producers: You will not only be required to manage cycles, but extreme volatility within the cycles due to trade tensions around the world.
The more the U.S. government issues stimulus checks, the greater the short-term impact of a softening dollar and an increased cost of borrowed money over the long-term. Now is a good time to lock in lower interest rates on borrowed monies, depending on one’s appetite for risk, of course. The decreased value of the dollar could enhance strategic global trade for commodities and services linked to export markets.
The year 2021 will continue to see strong, resilient farmland values. A combination of low, steady interest rates and the “TINA effect” makes land a popular choice for investors. Investors choosing land because other asset classes offer even worse returns is known as the “TINA Effect.” This situation and the subsequent decisions of investors can cause real estate values to rise only because there is no alternative for investors. Coupled with de-urbanization, remote working, self-sufficiency, and the rural renaissance movement, the value of quality farmland with attractive aesthetics should stay strong for the first half of the 2020s.
Consolidation inside and outside of agriculture will be one outcome of the COVID-19 pandemic. The big box companies and large businesses who can quickly scale up utilizing technology are in the driver’s seat to gobble up small businesses that are struggling. This is contributing to the rise in the stock market, which technology companies continue to dominate. It will be interesting to see whether the political, consumer, and societal trends will buck this movement toward consolidation.