Fitch Ratings added its voice to those cautioning of deteriorating prosperity for US crop farmers, but underlined that a repeat of the 1980s, when the sector crumbled under the weight of its debts, did not look on the cards.
The credit ratings agency forecast "modest income declines" for US crop farmers, flagging the potential for "continued pressure on corn prices" from improved growing conditions which have provoked forecasts of a record harvest.
And the downturn in takings - after a spell of growth which has driven overall US farm sector net cash income from $75.6bn in 2009 to $134.7bn last year, on US Department of Agriculture estimates – could prove prolonged.
"Some long range forecasts see the potential for corn prices to remain below $5 per bushel for several years," Fitch said.
"This type of sustained price weakness, coupled with a fall in farmland values, would put nominal pressure on Corn Belt incomes and asset quality."
'Pull-back in land values'
This could feed into sector credit conditions too, Fitch noted, flagging the potential for a fall in farmland values to cut borrowing collateral.
"Over time, a pull-back in crop prices and land values from record levels could cut farmers' incomes and net worth modestly across the US Corn Belt," the ratings agency said.
Indeed, already "signs of modest weakening in farm credit fundamentals appeared this summer.
"Most recent surveys of farmland prices by the Chicago and Kansas City Fed indicate that the rapid land price gains of recent years are moderating or stopping altogether this year."
Two reasons for comfort
However, unlike in the 1980s, when heavy borrowings coupled with soaring interest rates provoked a sector crisis, and a collapse in land prices, the sector this time appears better prepared for any downturn.
"Generally prudent underwriting practices by lenders in the Farm Credit System," the backbone of US agricultural lending, "have mitigated risks of a sharp rise in credit losses, even if crop prices remain depressed.
Agricultural lenders, including AgriBank, which Fitch said has the most exposure to farmland within the Farm Credit System, "have utilised conservative per-acre debt caps and land price forecasts".
Furthermore, farmers appear to have taken out a "relatively small" level of debt compared with farmland values, "strengthening farmers' balance sheets".
The conservative lending policy, and comparatively small debt load, "should prove to be adequate mitigants to asset quality concerns over the near-to-mid term", Fitch said.
The comments come amid a debate on prospects for agricultural income, thanks to lower crop prices, and the impact on farmland prices and the broader US rural economy.
Agricultural machinery maker Deere & Co earlier this month provoked a lively debate among Wall Street analysts by forecasting a relatively small drop this year in farmers' net cash receipts – a key indicator of farm equipment demand.
Fitch highlighted that, while arable farmers' incomes may be falling, "declining grain prices are a positive for cattle and pork producers that have seen heightened margin pressure over the last few years as feed prices have risen.
"Therefore, cash flow fundamentals for livestock loans are likely to improve this year."