MetLife head of agriculture Barry Bogseth tells Agri Investor why his loan book has grown since last year, where the insurer is seeing growth opportunities in Latin America and why recapitalisation needs among US producers are a mixed blessing.
How has your agricultural debt portfolio changed over the last year?
We are seeing increased levels of production … growing at an increasing rate across all of our property types: permanent plantings, timber, annual crops, livestock and agribusiness, [where we have a lot of cold storage, partly as a hedge]. From an economics perspective Latin America is playing a more important role than it was a year ago because of an improved US dollar relative to emerging market dollar. It is also important for our geographic and property type diversity. In Latin America we are expanding operations into Uruguay, Peru and Chile.
How significant are the growth opportunities in those Latin American markets compared with the US?
Peru and Chile are opportunity markets at this point. After that comes Uruguay. There is relative growth in the market place primarily because of new investment dollars coming in. The dollar exchange between the US dollar and the euro with other emerging markets is giving us more relative value and, as a result, more growth to enhance our overall portfolio yield.
As we divert to the US we are not seeing as many investment dollars because of the widening of bid/asks, in terms of what the sellers of property are willing to sell a property for and what buyers are willing to pay. But the US has still provided us great opportunity through recapitalisation of balance sheets.
Which sectors in Latin America are you seeing the most growth in?
The primary sector growth we are seeing is permanent plantings, and that would be primarily grapes, vineyards and new plantings of speciality crops. In Peru and Chile the primary area is in speciality crops: avocadoes, broccoli and wine grapes. In certain instances, we are looking at timber resources as well, although there is not as much in that space. Uruguay is the strongest in terms of timber. If and as we see these developed emerging markets grow, we will continue to expand into those marketplaces.
What are you seeing on the US market that is driving the need for bolstered balance sheets?
Agriculture in certain sectors in the US is struggling as a result of the higher dollar and production inventories, which has created opportunities for ag lending as a result of the need for more working capital to bolster balance sheets. We provide additional working capital to get [agriculturalists] through to the other side of the economic cycle, which may be resolved through reduced inventories, improved price or both.
How do you see some of the most difficult sectors in the US?
We underwrite to a long-term, sustainable view on agriculture, and we are not redlining any sector. Fundamentals and the balance sheets in annual crops are deteriorating. On the other hand, asset valuations that support the majority of the balance sheets in the agricultural crops sector, primarily land, are holding up fairly well.
We are also cautiously optimistic because weather events [like La Niña] and other constraining factors may correct the [large] inventories we are seeing in the annual crops sector. Depending on where you are at in the US, some land values are holding up much better than others on the basis of the [commodity] price. As a result we are operating in a cautious mode when providing capital financing.