Ninety-day delinquencies in the farm and ranch portfolio of Farmer Mac have more than doubled in value in the 12 months to end 2017.
Yet figures released by the company suggest the rise in delayed payments is largely driven by a small number of large borrowers, rather than difficulties across the board. Delinquencies increased from 38 loans, totaling $21 million, at the end of 2016 to 51 loans, totaling $48.4 million, at the end of last year.
Farmer Mac largely played down the trend. The increase “is primarily attributable to the delinquencies of several larger loans and certain crop and permanent planting loans,” it said, “mostly due to factors specific to the borrower and not related to macroeconomic factors in the agricultural economy.”
It noted that the delinquency of a single borrower topping $15.3 million in permanent planting loans accounted for more than half the increase in 90-day delinquencies.
Jalpa Nazareth, a manager of equity investor relations at Farmer Mac, declined to provide Agri Investor with more detail about that specific loan but said the total remained below the long-term average when measured by number. She explained that delinquencies cluster around January and June, when many lenders schedule payments, and tend to be very specific to the conditions facing individual borrowers.
“We always say: ‘With these delinquencies, it’s usually death, disease or divorce.'”
In late 2016, Farmer Mac used its quarterly earnings call to highlight the possibility of a rise in delinquencies in the next quarters. Signs of stress in the agricultural economy, it said then, were expected to impact the value of underlying real estate and farmers’ operating and equipment loans.
Curt Covington, senior vice-president for agricultural finance, told analysts on an earnings call on Thursday that, while ongoing renegotiation of NAFTA adds a degree of uncertainty to the outlook, specialty crops throughout regions have performed well of late. In contrast, he expected corn, soybean and dairy markets to face continuing hurdles in 2018.
“The grain sector is probably going to be flat to slightly declining, particularly through the upper plains, Midwest area,” Covington said. “The dairy sector is going to be suffering for the next six months with some slight improvements expected towards the second half of the year and particularly towards the final quarter of the year.”
Notwithstanding the delinquencies, Farmer Mac’s business performed well last year.
Reporting a more than 10 percent rise in annual net income for 2017 to $71.3 million on Thursday, chairman and acting president Lowell Junkins said that conditions in the broader agricultural industry were well suited to Farmer Mac’s strengths. Junkins added that Farmer Mac’s pipeline was robust with opportunities to support the people, technology and infrastructure of rural America.
“Outstanding business volume grew $1.6 billion in 2017 and earnings grew double digits,” he said. “Our strong capital position and earnings potential has allowed us to increase our first-quarter, common-stock dividend by 61 percent and remain on track with our targeted 30 percent core earnings payout for 2018.”