Despite Agriculture Headwinds, Farmer Mac Confident About Loan Performance

Farmer Mac officials are confident about the stability and continued performance of the loans on their books, even as the agricultural industry faces headwinds like the California drought and recent decline in corn prices. Times have been so good in the past few years that farmers should have been able to put enough cash in the bank to continue servicing their debt despite any market challenges.

Here are some additional highlights from a presentation by Charles Grote, Farmer Mac director of finance and investor relations, at Tuesday's Keefe, Bruyette & Woods Mortgage Finance Conference in New York:

• A more normal environment for the agricultural business is a good thing for Farmer Mac because it reduces the amount of refinancings and adds duration to its portfolio.
• Loan prepayments are a challenge to its spread income, but it seems refinancings have largely run their course.
• Loans which are 90-days late are just 0.60% of its Farm & Ranch portfolio and 0.22% of its overall portfolio, But as the agriculture market comes down from its high points, those should return to more normal levels.
• Even though Farmer Mac had major credit problems with the loans it purchased that supported ethanol production, the agency actually made money on them because they were priced properly.
• Farmer Mac has a $1.3 billion exposure to California. But most farmers there have access to water and are not in any financial straits yet. But if the drought continues, that could change. In underwriting loans for California properties, Farmer Mac looks for the property's primary and backup access to sources of water.