Farmer Mac expects rise in loan delinquencies

Agricultural lender warns of factors likely to end a period of low delinquencies as it reports $16.4m in third quarter earnings.

Farmer Mac loan delinquencies are likely to rise in coming quarters as signs of stress in agricultural markets impact underlying real estate, operating and equipment loans, according to the lender’s executives.

In a statement released in conjunction with Farmer Mac’s Q3 earnings call on Wednesday, executives said that 90-day delinquencies on farm and ranch loans stood at just 0.11 percent as of 30 September but were expected to return to their historical average of about one percent.

While delinquency rates had remained low during the quarter, many of its customers are voicing cash flow concerns and considering borrowing against additional land, Farmer Mac executives said on the call.

“The fact that agriculture has done very well over the past decade leading up to this recent downturn has put many borrowers in a position where they are able to weather the storm that they are currently in,” chief executive officer Tim Buzby said. “[But] as we talk to lenders across the country, we see a common theme of the upcoming year – year two of low commodity prices and stress – is when people will start to feel it.”

Farmer Mac also continues to monitor California’s historic drought through discussions with loan servicers, lenders and its customers.

“Although Farmer Mac has not observed any material effect on its portfolio from the drought through 30 September 2016, the persistence of drought conditions in certain areas of the West could have an adverse effect on Farmer Mac’s delinquency rates or loss expectations,” the company said in the statement.

The Federal Agricultural Mortgage Corporation, also known as Farmer Mac, acts as a secondary market for agricultural loans. It reported $131 million in new loans during the third quarter, bringing the total portfolio to $17.2 billion as of 30 September. The lender said that credit quality had remained stable across its portfolios but that it is exercising caution amid challenges across agricultural markets.

Farmer Mac reported $16.4 million of net income during Q3, a near doubling of the $8.4 million reported during the same period in 2015, which was attributed to the effects of unrealised fair value changes on financial derivatives and hedged assets.