What Does the Debt Ceiling Agreement Mean for Agriculture?

A deal on the debt ceiling is important for the entire agricultural industry to avoid a default of the government and possible shutdown of essential services. It can also limit farmer’s ability to secure FSA guaranteed loans and drive short-term ag lending rates even higher.

Nate Franzen, Agribusiness Division President, First Dakota National Bank, "The worst thing for rural America today is any default whatsoever because it's going to drive up the cost of capital it's going to drive up lending rates, it will have a real negative impact, especially when you consider the fact that a large amount of amount of capital that goes out to rural America has a connection to government whether it's a government sponsored enterprise like the Farm Credit System, or Farm Service Agency, which is an agency of the government, all of those things are really impacted by the government's ability to stay in a strong credit rating and not default on their obligations."

However, Franzen says the reluctance by some lawmakers to support a higher debt ceiling is because the U.S. can’t continue to go deeper into debt without economic repercussions. "No doubt we're at a point in time where that needs to be addressed. I think the latest numbers I saw were at about 125% of GDP which is approaching the highest point we've ever been at. Many would argue that's still manageable, but it's certainly getting to an uncomfortable level. And so that needs to be addressed. I think the challenge here is how can we address that but at the same time, adjust the debt ceiling so that we can continue to pay our bills, as we know we need to."

He says the fact that the debate has drug out this close to the deadline has already had a cost to the marketplace. "Anytime the market is nervous, they price in for more risk and the way the market prices and from our risk is it raises rates. It wants to get paid more for the increased risk that it's for it's for seeing and in the marketplace and I'm sure that is already happening on small levels."

The equity, energy and markets like the U.S. dollar index have also been pricing in the possibility of a default and when the dollar rises it make U.S. exports less competitive globally. Farmers are also hopeful for passage of the deal to avoid the negative effect on ag markets and their bottom line.

Click here for complete story and video by Michelle Rook, Farm Journal Ag Web