Even without the unlikely and unthinkable event that the U.S. government to go into default, agriculture will still be affected by the nation’s political and debt problems.
"Some of the budget cuts aren’t going to come back," says Jim Hilker, ag economist at Michigan State University. Assuming Congress and the Administration can forge a longer term deal that is not yet guaranteed, Hilker thinks required budget cuts could well mean the loss of some USDA reports. "Market efficiency could be reduced as a result," he says. Less market information would mean more price volatility, he adds. "For producers, marketing then becomes more risky." This is just one example of how government policy is a macro factor affecting prices and producer incomes, Hilker explains.
In the absence of an political agreement to raise the debt ceiling, agriculture could be impacted in significant ways, and none of them good, says Pat Westhoff, director, Food and Agricultural Policy Research Institute (FAPRI). Many private forecasters say the result would be higher interest rates and reduced economic growth here and abroad. As a result, global demand for farm products is hurt, commodity prices retreat, and land values retreat, Westhoff says.
Meanwhile, the stock market had one of its best days of the year Oct. 10 after lawmakers began considering a potential deal that would temporarily stop the government from defaulting on its debt. However, the deal proposed by House Republicans would only increase the debt limit through Nov. 22, thus avoiding the Oct. 17 default date, and it would not end the partial government shutdown. The proposal, if accepted by President Obama, would simply delay a longer-term solution to Washington’s fiscal fight that impacts agriculture as well as the entire U.S. and global economies.
At the same time lawmakers are debating the budget, the $1.4 trillion deficit in 2009 has been more than cut in half to less than $700 billion today, Westhoff notes. "That’s a big change." While the deficit is still large, without the reduction agriculture would likely be facing far larger program cuts, he adds.
Regarding the partial government shutdown, the grain and oilseed supply chain is potentially is being impacted by a 53% furlough in the staff of the Federal Railroad Administration, a 54% furlough in staff at the Maritime Administration, and a 98% furlough in staff at the Surface Transportation Board. However, USDA’s Grain Inspection, Packers and Stockyards Administration and the Federal Grain Inspection Service that are supported by user fees will continue despite the shutdown, according to the American Soybean Association.
In addition, the issuance of phytosanitary certificates by USDA’s Animal and Plant Health Inspection Service for plant products bound for export will continue despite the shutdown, because those activities are also supported by user fees, ASA notes.