US shutdown a warning

"Following record milk price forecasts and increases in the ANZ Commodity Index across the primary industries, farmers may be very bullish about the current 2013/14 season," says Dr William Rolleston, Federated Farmers vice-president.

"The optimism is most welcome since the ANZ Commodity Index has hit its third highest level. Meat and Fibre farmers will be relieved to see the international price of wool, our green and renewable fibre, increase 13% in a month. Yet it is right across the primary board, from red meat to apples and logs, we just seem to be in an export sweet spot.

"Some may be tempted to anticipate outstanding forecasts for this season by taking on debt.

"We need to send a word of caution given events in the United States took a turn for the worse this week. In the short-term, we can possibly expect the shutdown will put a floor under the Kiwi dollar.

"But there is a fixed date looming which seems the fiscal equivalent of M.A.D; mutual assured destruction.

"On October 17, the United States is expected to hit its debt ceiling, which means for the first time in history the United States will default on its debt.

"If this happens we will be looking at a Global Financial Crisis Mark II. When it last struck during the 2008/9 season it put a scythe through all farm budgets. While I am hoping cooler heads will prevail, it is a poker match being played for the highest of stakes.

"Certainly the US Treasury Secretary has put things starkly in a letter to Congress.

"It is a huge reminder that we do not know what is around the corner as the 2013 late summer drought proved.

"Agricultural debt is up over $2 billion on 2012 and while the drought will be a big factor in its growth, it is clear we need a good year to regain some headroom.

"While we urge farmers to be cautious with their cheque books, critical productive investment is still vital. Of course a Federated Farmers membership continues to be a critical productive investment, given the bottom line savings we generate for members through our policy and advisory services.

"Save for repairs to irrigation infrastructure in Canterbury, I would counsel caution for big ticket items until we get a lot further into this season than just the start line," Dr Rolleston says.