Brazil’s farming sector was already battling record breaking defaults. Last week’s election results only deepen the gloom for growers hoping for a swift turnaround for one of the nation’s most important economic forces.

A surprise win for President Luiz Inacio Lula da Silva was a blow for big agriculture, who saw in his right-wing challenger Flávio Bolsonaro a more natural ally to their interests. That adds to a squeeze in the farm economy, with little relief ahead as rising input costs and double-digit interest rates fuel defaults.

“Thousands of producers are going through a serious financial crisis,” Lucas Beber, president of soybean growers group Aprosoja Mato Grosso, said in a note a day after the elections. “We need a structural solution for rural debt that goes beyond simply extending due dates.”The situation marks a deep shift for the agriculture superpower that had once boomed on record harvests and cheap pandemic-era credit. What farmers’ finances show is there is little relief ahead for the nation that’s the world’s largest supplier of soybeans, coffee, beef and sugar.

Farmers had expected Bolsonaro to embrace broad-reaching debt relief measures, while markets also saw him as more likely to handle the fiscal overhaul needed to lower borrowing costs. The farm sector’s clash with Lula also encompasses disagreements on environmental regulation and land rights, but farm debt became a point of focus as it limits producers’ ability to invest in their land, slowing growth.

Even as a majority of right-wing lawmakers were elected to congress, a hefty representation is not a guarantee that farmers’ demands will be met, as the farm-friendly legislators often clashed with the government.

To be sure, even with Bolsonaro victory, any turnaround for growers would take time. Farm-loan delinquencies have climbed to the highest level in central bank data going back 15 years. In addition to high borrowing costs, producers have been grappling with shrinking grain margins and repeated weather shocks, especially in Southern Brazil.

In Rio Grande do Sul, more than 40 farmers struggling to repay their debts have committed suicide over the past two years, according to Arlei Romeiro, head of a regional farm lobby who has been campaigning against what he calls unfair lending practices. Romeiro unsuccessfully ran for congress seeking to advance legislation to provide debt relief to farmers.

The cost of credit to farmers has risen as a surge in the number of growers asking for bankruptcy protection pushed lenders to reassess risk.

“Even as interest rates come down, bank spreads are rising because of the increase in the risk premium, and credit remains very expensive,” said Manoel Pereira de Queiroz, an agronomist and partner at Mapa Capital. “We have a big problem.”The outlook has only become more challenging since the election. Traders have pared bets on near-term rate cuts and are now pricing in renewed tightening further ahead, adding pressure on farmers already grappling with record delinquencies.

The crisis is already curbing investment into crop expansion. Limited growth should be seen this season and the next in the top soybean producing state of Mato Grosso, said Cleiton Gauer, superintendent of farmer-backed research institute IMEA.

“These days, farmers run the numbers a thousand different ways before investing in machinery or buying land,” Gauer said. “We no longer have that frenzy of investment.”Farmer-backed lawmakers are looking for ways to expand the reach of debt relief measures after a recent provisional measure signed by Lula was considered insufficient. The measure, which expires in November if congress doesn’t approve it, only set aside 26 billion reais ($4.8 billion) to back subsidized loans. It left out large lenders from the renegotiation effort, Romeiro said.

Brazil’s total rural credit outstanding stood at 885 billion reais in July, with an unprecedented 208 billion reais classified as “problematic” by the central bank, a category that includes loans that are overdue, in arrears or renegotiated.

Lula responded to criticism of his agriculture policies during a final electoral debate, saying his administration released meaningful resources for small farmers. He also focused in opening new markets for Brazilian agricultural exports, with the recent start of sorghum shipments to China, and beef shipments to Vietnam.

Still, the lack of clarity on government debt under Lula sets the tone for a still elevated benchmark rate, Oppenheimer analysts led by Kristen Owen wrote on Oct. 27. “Sustained higher financing costs” could delay a recovery for spending in agriculture machinery, they added.

Bankruptcy protection filings in agriculture actually declined 5.5% in the second quarter from the previous three months, according to data from creditor information company Serasa Experian. Ongoing renegotiations with creditors may have aided results, but cost of money is still a concern.

“The problem is what lies ahead,” said Marcelo Pimenta, a managing director at Serasa Experian. “What we have seen since 2022 is a series of shocks, and the shock from the rise in interest rates did not go away, as rates remain very high.”