Farm Credit Services of Mid-America, an agriculture lending cooperative serving over 92,500 farmers, rural residents and agribusinesses throughout Indiana, Kentucky, Ohio and Tennessee, announced earnings of $101.5 million through the second quarter of 2011 up 2.5% from the same period last year. Additionally, owned and managed assets totaled $17.4 billion at quarter-end, representing an increase of over 5% compared to a year ago. Credit quality remained stable at 4.2% of the portfolio classified as adverse.
"Our growth during the first six months of the year is a result of the strong agricultural economy," says Bill Johnson, president and chief executive officer. "While farmers are experiencing higher production costs for everything from seed to fertilizer, the demand for corn and soybeans is driving up commodity prices making it a very encouraging time for farmers."
As a government sponsored entity, Farm Credit has benefited from broad access to domestic and global capital markets. This access has provided them with a dependable source of competitively priced debt which is critical for supporting the association's mission of providing credit to agriculture and rural America.
On Aug. 5, Standard and Poor's Rating Services lowered the U.S. government rating to AA+, followed by a similar rating change for the Farm Credit System on Aug. 8. The impact of these downgrades on the Farm Credit System's credit rating could increase the association's borrowing costs and limit access to the capital markets.
However, according to Johnson, S&P's action to reduce the country's credit rating is causing volatility in stocks and is thus making bonds more attractive to investors, including those who purchase Farm Credit Bonds. "We are operating from a position of financial strength and are able to quickly react to potential market disruptions. While the recent ratings actions will put pressure on interest rates over the long-term, for now rates have decreased and could remain low in the near term as the Farm Credit System is seen as a safe-haven for investors with few other alternatives," he says.
It is impossible to predict how low rates could go or at what point they'll move up but rate locks (securing a rate before closing the loan) and fixed rate financing provide protection against future uncertainty. And, at Farm Credit, customers have a unique opportunity to convert existing loans at historically low rates.
Since the first of the year, Farm Credit has converted more than 10,000 loans resulting in interest savings of more than $25 million for customers. Interest rates are so attractive right now that on August 11, the association experienced its biggest day in its history for conversions with more than $126 million in loan volume moving to lower rates. "Many of those loans are moving to fixed rate financing which provides added security in knowing that your interest rate will never increase," Johnson says.
Additionally, Farm Credit recently lowered customer's interest rate by .35% saving another $43 million in interest expense. "In the end, it's about meeting our mission of providing the best and most competitive products and services to farmers and rural America," he said. "Offering programs like conversions, rate reductions and rate locks are just a few ways we are meeting marketplace demands."