Farmer Mac: All’s Great But The Ethanol
Posted on: May 13th, 2009 | By Andrew Snyder | Filed under Real Estate Investments
Fannie and Freddie may be in trouble, but their more-conservative cousin is doubling investors’ money today. Now if it could just do something about that ethanol industry.
We have all heard of Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the two government-created entities at the heart of the mortgage meltdown. The mortgage buyers have been filled with controversy, scandal and, most recently, tragedy.
But how about their hillbilly cousin, Farmer Mac? What’s he been up to?
Well, if you happen to look at today’s action from the Federal Agricultural Mortgage Corporation (NYSE:AGM), or Farmer Mac to fit the name game, you will like what you see.
Shares of the company, which buys loans from farmers, ranchers and other rural real estate buyers, are soaring by over 125% today on news the firm somehow managed to record a profit.
This time last year, the company reported a loss of $8.3 million. Today it announced a net income of $33.5 billion. Not a bad turnaround. But I would not get too excited.
The profits were mostly made from trading and positive shifts in derivative prices. The fundamental mission of the company, profiting from mortgage cash flows, remains risky.
“Alternative” risks
In fact, the company had to set aside an additional $3.5 million to cover potential future bad loans in the ethanol sector. (Is there even an ethanol sector left?) About 65% of the Farmer Mac’s past-due loans, $58.5 million worth, were related to the ethanol industry.
I hope the company is not making any wind, solar or geothermal loans.
Today’s surge in share price is certainly good to a handful of investors fortunate enough to grab shares while they were bouncing off scary-low prices. But for the folks that bought back in September for over $30, today’s news means their loss went from 87% of their principal to just 73%.
Not enough to dry many tears.
Going forward, however, Farmer Mac looks quite stable, unlike its wild and reckless cousins, Fannie and Freddie. The rural markets are full of potential as the nation re-thinks (or re-brands) its energy industry. And rural land prices are drastically more stable than the McMansions dotting suburbia.
It will be away before Farmer Mac’s crop is ready to harvest, but the time will come. Now is certainly a good time to be planting some seeds.
Source: Farmer Mac: All’s Great But The Ethanol
