MetLife’s loan book rallies as US producers seek fixed rates – exclusive

The insurer is seeing more clients borrow money on fixed rates, and is seeing recapitalisation opportunities in permanent crops in California, which makes up at least 15 percent of its portfolio.

MetLife’s agri loan book is now growing again after the insurer issued $400 million less in agricultural loans in 2015 than the $3.6 billion it issued in 2014.

The gains are coming from recapitialisation needs in the US and growing markets in Latin America, according to head of agriculture Barry Bogseth. The Latin American portfolio has grown to up to 8 percent of the overall agri lending portfolio. However, it has risen at slower pace than the US portfolio over the last six months, according to Bogseth.

MetLife also sees lending opportunities in permanent and annual crops in the US, where it is issuing more loans on fixed rates.

“It’s a positive [for us] as it is a good match for longer-dated liabilities that are being generated by MetLife,” said Bogseth, adding that lower rates were also an incentive for clients to lock in.

While the insurer is more cautious about lending to annual crop farmers, where Bogseth said some land values could fall as much as 18 percent, he says they are finding recapitalisation opportunities there and in the permanent crops space.

“With regards to permanent plantings, … a California pistachio or almond grower today is experiencing lower prices as a result of a disimproving US dollar. At the same time increased levels of production are coming online and  drought conditions have not fully gone away.”

“We look to underwrite a long-term sustainable view on almond and pistachio prices that essentially mirror prices seen in today’s market. Drought predictions have been reduced as a result of the improved moisture that we have seen over the last weather cycle. We are also seeing some permanent plantings being pulled out … and that will reduce the overall supply ultimately.”

California makes up between 15 and 25 percent of MetLife’s ag lending portfolio.

“Water plays a significant role in the loan origination process [in California] … as the drought has persisted in the western states, the underlying interest rate is factored into the risk-adjusted rate of returns,” he said.

The firm has also expanded its footprint in Uruguay, Chile and Peru, through increased investment in the permanent crop sector and demand for US dollars from investors and operators.

Head of real estate and agriculture research Melissa Reagen added growth rates starting from 2 percent in the countries where MetLife operates were much more attractive than in many developed markets.

“They are certainly smaller markets, from a GP or a people consumer base. Still, you can certainly get attractive relative value when you’re lending in those countries; attractive, risk adjusted. Think about some of the structural reforms some of those countries have gone through in the last ten years, and not all of them are as risky as they may be perceived to be if you haven’t done your homework,” she said.