Business Overview

The Federal Agricultural Mortgage Corporation, or Farmer Mac, is a publicly traded, federally chartered corporation that serves as a secondary market provider, increasing the accessibility of financing for American agriculture and rural infrastructure. With a diverse portfolio spanning farm and ranch loans, renewable energy, broadband infrastructure, and more, Farmer Mac has established itself as a vital player in supporting the growth and sustainability of rural America.

Farmer Mac was established in 1988 through an act of Congress, with the mission of providing a secondary market for agricultural real estate and rural housing mortgage loans. As a federally chartered instrumentality of the United States, Farmer Mac's primary goal was to increase the availability of long-term credit at stable interest rates to America's farmers, ranchers, and rural homeowners.

In its early years, Farmer Mac faced challenges in building its business and establishing its role in the agricultural finance market. One significant hurdle was gaining the trust and acceptance of rural lenders, who were initially hesitant to sell their loans to Farmer Mac. However, the company persevered and gradually demonstrated the value it could provide to both lenders and borrowers.

A key milestone in Farmer Mac's history came in 1996 when Congress expanded its authority to include the creation of a secondary market for USDA-guaranteed loans. This allowed Farmer Mac to further diversify its product offerings and reach a broader customer base. In the early 2000s, Farmer Mac also began purchasing loans from agricultural lenders to hold on its own balance sheet, in addition to guaranteeing securities backed by agricultural loans.

During the late 2000s, Farmer Mac navigated the financial crisis relatively well compared to many other financial institutions. While it did experience an increase in delinquencies and credit issues in its portfolio, particularly related to its ethanol plant loans, Farmer Mac was able to manage through this challenging period. The company emerged from the crisis in a strong financial position, which positioned it well for future growth and expansion of its business.

Over the past three decades, the company has evolved to become a leading provider of financing solutions for a broad range of rural industries, from traditional farming and ranching to emerging renewable energy and broadband infrastructure projects.

Farmer Mac's business model is centered around purchasing eligible loans from lenders, securitizing them, and then either holding the resulting securities on its balance sheet or selling them to investors. This allows the company to provide a reliable source of liquidity to its lending partners, enabling them to extend more credit to their rural customers. Additionally, Farmer Mac offers loan guarantees, long-term standby purchase commitments, and other risk management products to further support the agricultural and rural finance sectors.

Financials

In 2024, Farmer Mac reported total revenues of $362 million, a 3.7% increase from the previous year. This growth was primarily driven by a $12.6 million improvement in net effective spread, the company's key profitability metric, which reached $252 million for the full year. Farmer Mac's core earnings, a non-GAAP measure that excludes the impact of fair value fluctuations, also reached a new record of $171.6 million, or $15.64 per diluted share.

For the most recent quarter, Farmer Mac reported revenue of $92,123,000 and net income of $50,848,000. The company's operating cash flow and free cash flow for the quarter both stood at $367,531,000.

Farmer Mac operates through three main business segments: Agricultural Finance, Rural Infrastructure Finance, and Treasury. As of September 30, 2024, the Agricultural Finance segment had $19.93 billion in outstanding business volume, with $18.09 billion in the Farm Ranch sub-segment and $1.84 billion in the Corporate AgFinance sub-segment. This segment generated $118.76 million in revenues for the first nine months of 2024, with a net effective spread of $102.75 million.

The Rural Infrastructure Finance segment had $8.54 billion in outstanding business volume as of September 30, 2024, with $7.44 billion in the Rural Utilities sub-segment and $1.10 billion in the Renewable Energy sub-segment. This segment generated $21.52 million in revenues for the first nine months of 2024, with a net effective spread of $22.23 million.

The Treasury segment, which manages Farmer Mac's investment portfolio, funds, and hedging activities, generated $23.45 million in revenues and had a net effective spread of $25.80 million for the first nine months of 2024. As of September 30, 2024, Farmer Mac held $6.73 billion in cash, cash equivalents, and investment securities.

Diversifying the Business Mix

One of the hallmarks of Farmer Mac's strategy has been its ongoing efforts to diversify its business mix. While the company's farm and ranch loan segment remains a core focus, it has made significant strides in expanding into other rural finance verticals, such as renewable energy and broadband infrastructure.

Renewable Energy

Farmer Mac's renewable energy portfolio has been a standout performer, growing from just $487 million in outstanding volume at the end of 2023 to nearly $1.5 billion by the close of 2024. This segment has become a top priority for the company, with Farmer Mac doubling its renewable energy volume year over year since introducing the product in 2020. The growth in this higher-yielding business has been a key driver of the company's improved net effective spread.

Broadband Infrastructure

Another area of focus for Farmer Mac has been the financing of rural broadband and telecommunications infrastructure. The company's broadband infrastructure segment grew by over 60% in 2024, reaching $800 million in outstanding volume. This segment, previously housed within the rural utilities portfolio, has been broken out to provide greater transparency into its performance and strategic importance.

Corporate AgFinance

Farmer Mac has also made strides in expanding its corporate agribusiness lending, with the corporate AgFinance segment adding $200 million in net new volume during 2024. These larger, more complex loans tend to be more accretive to the company's net effective spread compared to traditional farm and ranch mortgages.

Resilient Performance Amid Volatility

Farmer Mac's diversified business model and proactive risk management practices have allowed the company to navigate market volatility and economic cycles with resilience. Despite headwinds such as rising interest rates and agricultural sector stress, Farmer Mac has maintained strong credit quality, with substandard assets representing just 1.5% of its total outstanding business volume as of the end of 2024.

The company's allowance for losses increased by $7 million during the year, primarily due to a few isolated credit events, rather than any broad-based deterioration in portfolio performance. Farmer Mac's management team continues to take a conservative approach to credit risk, closely monitoring the agricultural and rural infrastructure sectors and making appropriate adjustments to its underwriting and reserving practices.

Liquidity

Farmer Mac's liquidity position remains robust, with 264 days of liquidity as of year-end 2024 and approximately $1 billion in cash and short-term investments. This ample liquidity, coupled with the company's access to the debt capital markets, provides Farmer Mac with the flexibility to capitalize on growth opportunities while also weathering potential market disruptions.

Governance and Regulatory Environment

As a government-sponsored enterprise (GSE), Farmer Mac operates under the oversight of the Farm Credit Administration (FCA), an independent agency that regulates the Farm Credit System. The company is required to maintain minimum capital levels and adhere to strict risk management guidelines, which have helped to reinforce its financial discipline and resilience.

Farmer Mac's board of directors and management team have also demonstrated a strong commitment to corporate governance, with robust risk management practices and a focus on transparency. The company has a history of proactively addressing regulatory changes and adapting its business model to align with evolving industry dynamics.

Outlook and Conclusion

Looking ahead, Farmer Mac remains well-positioned to continue delivering consistent financial performance and fulfilling its mission of supporting rural America. The company's diversified business mix, strong liquidity and capital levels, and disciplined risk management approach position it to navigate the evolving agricultural and rural infrastructure landscapes.

Farmer Mac's management team has outlined several key strategic priorities for 2025, including further expanding its renewable energy and broadband infrastructure financing capabilities, exploring new securitization opportunities, and maintaining its focus on operational efficiency. With a proven track record of innovation and adaptability, Farmer Mac is poised to capitalize on the growing financing needs of rural communities across the United States.

For 2025, Farmer Mac plans to continue its target deal sizes of approximately $300 million for their farm securitization program, as they explore opportunities to introduce new securitization products and asset classes, including renewable energy. The company expects to see positive momentum continue in 2025 as tightening bank liquidity and an adjustment to a higher rate environment takes hold, leading to increased demand for their farm and ranch loans.

Within the renewable energy segment, Farmer Mac's 2025 pipeline remains strong, as their efforts and investments to grow this portfolio remain one of their top priorities. The company is confident that their underlying business model, strong capital position, and uninterrupted access to the debt capital markets will continue to position them well to partner with customers and create more opportunities to enhance shareholder value.

Farmer Mac's successful completion of two $300 million farm securitization transactions in 2024 marks the first time they have completed two issuances in one year, further demonstrating the company's growing capacity and market presence. This achievement, coupled with their consistent loan growth, effective asset liability management, and funding execution, as well as well-managed operating expense control, has contributed to their record net effective spread and core earnings in 2024.

As Farmer Mac continues to execute its diversification strategy and capitalize on emerging opportunities in rural America, the company remains committed to its core mission of increasing the availability and affordability of credit for the benefit of rural communities and agriculture.