The head of MetLife’s agricultural portfolio unit Barry Bogseth tells Agri Investor why his loan book will grow in 2016, which sub-sectors are best to lend against, and why the diversified risk-return his unit provides is essential to the insurer’s portfolio.
Why is MetLife attracted to agri lending?
The agriculture portfolio, which we are growing [in the US and] abroad, is worth in excess of $13 billion and [has] approximately 3,800 loans. It is a good fit for the organisation because we provide a long-term investment to offset or diffuse liability. We are geographically and property-type diverse, which helps mitigate some of the risks associated with a large investment portfolio. The portfolio provides a spread premium to comparable public corporate bonds and has low credit losses. Most of our portfolio is in the US, but we also provide loans for businesses in Latin America and Canada.
How does your strategy mitigate risk?
[By] focusing on long term debt when it comes to real estate, and the underlying value of the asset. We offer agricultural debt [to] annual crop-producing properties, as well as livestock properties and forest. Forest works particularly well with our asset liability matching because it provides a long-term average life.
MetLife underwrites and originates to a long-term, sustainable agricultural view. When asset values were growing at an increasing rate over the last four to five years, MetLife did not increase its debt [specifically] against that asset valuation. Until recently we’ve had record years in farm income and we have not been ramping up our debt relative to that [either]. You have a debt to asset ratio that has been declining for a period of years at a fast rate, and net farm income [is coming] down. Our portfolio is well structured to meet [a possible] downturn.
How do you find opportunity in the market?
As net farm income drops, the demand for total debt increases. We compete with community, regional, national and international banks, as well as Farm Credit and other life insurance companies. We seek [to make] loans ranging from $1 million to more than $100 million, to larger farming and ranching operations, agribusiness customers and timber owners. The traditional bank loan market is starting to revert back to its historical revolving lines of credit needs, [and focusing] less on real estate finance. We see that as our opportunity as we are reverting more to long-term debt issuances on real estate.
Beyond real estate we have an agribusiness debt offering – which is everything beyond the farm gate, from food production to cold storage and distribution – but that’s about 15 -17 percent of our portfolio. The underlying credit is very important when we are looking at those types of opportunities.
What’s the future for agri debt?
Consolidation has been increasing over the last 30 years, in that there are fewer agricultural lenders.
[Also] a farming organisation could have been an individual 30 years ago. Today you will find multi-entities, [who] have [invested in farmland] for state and succession planning purposes. As a result of that changing complexity we are seeing that the recognition of debt finance and the underpinnings of what supports that debt finance has increased.