FEDERAL AGRICULTURAL MORTGAGE CORP

Business Outlook

Products and Portfolio

Farmer Mac serves a vital role in serving rural America by offering liquidity, capital, and risk management tools as a secondary market to help increase the accessibility of financing for American agriculture and rural infrastructure. The growth trajectory of Farmer Mac is closely tied to the capital and liquidity needs of the lending institutions serving agriculture and infrastructure businesses and the overall financial health of borrowers in these sectors. Even with continued high market interest rates and global and economic volatility, Farmer Mac's outstanding business volume and net effective spread increased 3.1% and 8.4% in first quarter 2025 versus first quarter 2024, respectively. The increase in business volume and net effective spread primarily reflects the increased diversification of Farmer Mac’s business model and the resiliency of the agriculture and infrastructure sectors.

Several factors continue to influence business volume growth dynamics. The persistently elevated market interest rates have had a direct effect on Farmer Mac’s Farm & Ranch product interest rates, and there generally exists an inverse correlation between Farm & Ranch new loan purchase volumes and changes in Farm & Ranch product interest rates, with higher product interest rates slowing portfolio loan prepayments. Also, a tightening agricultural economy is creating the need for additional liquidity and working capital for borrowers managing through this agricultural cycle. The net effect of these forces contributed to positive Farm & Ranch loan purchase portfolio growth in first quarter 2025. Future changes in monetary policy, sustained elevated product interest rates, the impact of changes to global trade policies (including tariffs and trade restrictions), and the financial health of borrowers are anticipated to influence the demand for agricultural real estate mortgage loans and the pace of repayments. Farmer Mac experienced a decrease in wholesale finance volume during 2024, driven by slower market loan growth and a tightening of market credit spreads that resulted in less liquidity and diversification needs from our counterparties. During first quarter 2025, Farmer Mac closed a new AgVantage facility with a large counterparty, demonstrating the continued interest in this unique wholesale finance product from potential counterparties. Any future wholesale finance growth will likely be influenced by market interest rates and credit spreads, overall economic conditions and loan growth opportunities, and the relative value of Farmer Mac’s products versus the broader market. Corporate AgFinance loan purchases and unfunded commitments increased 16.1% in first quarter 2025 versus first quarter 2024. The Infrastructure Finance segments showed significant business volume growth in first quarter 2025, increasing over $1.5 billion, or 19.5%, to $9.8 billion in first quarter 2025 versus first quarter 2024. Business volume in Infrastructure Finance was strong across most products and segments in first quarter 2025, primarily driven by increased financing activity for renewable energy projects and broadband infrastructure in response to continued strong demand for renewable power generation and storage and data center investments.

Opportunities for profitable future business volume growth include Farmer Mac's potential role in alleviating liquidity, capital, and return-on-equity capital challenges faced by agricultural and infrastructure lenders. The suite of Farmer Mac's offerings encompasses loan and loan portfolio purchases, participations, guarantees, LTSPCs, wholesale funding, and securitizations. Ongoing business and product development efforts continue to attract institutional investors and nontraditional lenders, resulting in the diversification of Farmer Mac's customer base and product set, potentially generating increased product demand from new sources. Farmer Mac’s expanded loan servicing capabilities enhance our loan portfolio purchase value proposition, adding new product offerings to an increasingly diverse customer base.

Growing relationships with larger agriculture lenders, financial industry consolidation, interest rates and market volatility, the impacts of changes to global trade policies (including tariffs and trade restrictions) within the agricultural and infrastructure sectors and the corresponding supply chains, as well as financial institutions' focus on capital efficiency and liquidity continue to provide increased opportunities for Farmer Mac, influencing the demand for loan purchases, risk management solutions, and wholesale funding. Any such growth may lead to an increase in the average transaction size within Farmer Mac’s lines of business. The financing needs arising from mergers, acquisitions, consolidation, and vertical integration in the agricultural and infrastructure industries present further opportunities for Farmer Mac’s loan purchase products and other financing solutions. And investments supporting consumer and food supply demand may increase financing needs in the food and agriculture supply chain, potentially requiring incremental capital support through the secondary market. Deepening relationships with eligible infrastructure counterparties are expected to continue to create opportunities to support fiber and broadband-related transactions, including significant market activity and investments in wholesale data centers, as well as renewable energy projects. Changes associated with governmental policies, including but not limited to fiscal, monetary, trade, tax, and regulatory policies and executive orders implemented by the new federal executive administration, have the potential to impact the primary business sectors served by Farmer Mac, which could affect business volume growth and opportunities.

Funding

Farmer Mac's business may benefit from natural business hedges that help mitigate vulnerability to effects from interest rate volatility. When interest rates rise, prepayments tend to decline, but interest earned on excess cash and capital could increase. Conversely, when interest rates decline, loan purchase volume often increases, but prepayments tend to rise as well. Although these natural business dynamics may not be perfect offsets, they tend to provide some counterbalance to mitigate volatility from changes in short-term interest rates.

Operations

Farmer Mac anticipates ongoing increases in operating expenses over the next several years, aligned with our planned expansion of investments in human capital, technology, and business infrastructure. These investments are designed to enhance capacity and efficiency in support of growth opportunities and long-term strategic objectives. By investing in infrastructure and funding platforms, Farmer Mac aims to scale more efficiently in tandem with future portfolio and earnings growth. These initiatives are expected to improve product delivery and funding efficiency, potentially generating more benefits for future growth.

Another focus of our planned infrastructure investments is a continued effort to expand our servicing capabilities and to enhance the efficiency of processes associated with loan onboarding and servicing. Farmer Mac expects to continue to leverage technology enhancements and servicing standardization efforts to drive scalability and consistency. Technology enhancements and process re-engineering are planned for 2025 to continue to incorporate all Farmer Mac loan portfolios onto our servicing platform and to provide flexibility in accessing loan portfolio information, increase standardization of data and processing, as well as streamlining operational workflows.

Agricultural Finance Industry Outlook

Farm Incomes

Overall farm profitability has compressed in the last two years. According to the USDA, net cash farm income peaked at $210.1 billion in 2022, a record for both nominal and inflation-adjusted farm profits. The primary driver of profitability in 2022 was higher cash revenues, in contrast to 2019 and 2020, when elevated government support payments supported farm incomes. The USDA has reported that annual net cash farm income decreased 25% in 2023 but currently estimates that it rebounded 2% higher in 2024. For 2025, the USDA forecasts an additional 22% increase in net cash farm income, fueled by a $33 billion increase in government support payments (authorized, but not yet disbursed) from the American Relief Act enacted in 2024. If realized, 2025 net cash farm income would reach the third-highest inflation-adjusted level in history. Ad-hoc and supplemental government support payments are not guaranteed annually, but can help offset poor market conditions for producers.

Commodity prices may continue to see elevated volatility in 2025. A rebound in global supplies put downward pressure on annual grain crop prices for much of 2024. However, annual crop prices continued to stabilize in first quarter 2025, and even increased modestly for some crops. Prices for some tree nuts also continued to recover in first quarter 2025. Tree nut producers have reduced new plantings in recent years, which, combined with robust exports this marketing year, has provided moderate support for prices. Tree nut prices, including almonds and walnuts, had faced similar pressure in recent years from rising production. However, production was relatively stable in 2024, helping limit and even partially alleviate the buildup in inventories. Within the livestock and animal protein sector, producers benefited from lower feed costs and robust export demand in first quarter 2025, particularly the cattle sector. Overall farm expenses remained somewhat stable in first quarter 2025, with lower expected feed, fertilizer, interest, and fuel costs partially offset by higher expected livestock, labor, and rental rates. Demand for corn and soybean by-products could see a boost in 2025 as renewable diesel and sustainable aviation fuel markets continue to mature.

The change in U.S. political leadership has induced uncertainty into the outlook for the agricultural sector. Notably, trade policy continues to evolve, resulting in potential challenges and opportunities. Exports have historically been a substantial demand source for many U.S. agricultural commodities, including almonds, pistachios, and several crops and livestock products. Any extended disruption to trade could therefore potentially cause domestic inventories to increase and potentially weigh on prices. Conversely, new trade agreements could lead to an immediate boost in demand if foreign trade barriers are reduced. Similar to many other sectors, the agricultural industry will likely remain acutely focused on trade for the rest of 2025.

Beyond developments related to trade, changing environmental regulations and immigration laws under the new administration could result in significant impacts on agricultural producers and the sector as a whole. These changes could lead to both favorable and unfavorable conditions, different labor costs and availability, and new regulatory frameworks. The agricultural sector may experience varying degrees of disruption and adaptation in response to these evolving policies, and these changes could increase the volatility of sector profitability in the near term.

Lower prices for several agricultural commodities could have multiple competing effects on loan performance and agricultural credit demand. Constraints on cash flow and additional market volatility can cause loan delinquencies to continue to rise above historical averages, most likely in commodities experiencing negative market conditions like some grain and permanent crops. Simultaneously, cash flow constraints and heightened uncertainty can increase demand for debt capital to reorganize balance sheets and replace lost incomes. Farmer Mac believes that its portfolio and market strategy is sufficiently diversified by borrower, industry, and region to maintain robust portfolio performance through the current cycle to be positioned to support any expansion of the farm mortgage market that may arise in the coming quarters.

Land Values

Record-setting farm incomes in 2021 and 2022, combined with historically low interest rates in 2020 and 2021, drove a rapid rise in land values and a decrease in farm delinquencies and bankruptcies. Momentum for farmland values persisted throughout 2023 due to high levels of farm liquidity and a constrained supply of farmland for sale. Land values slowed in some markets in 2024 due to higher interest rates and lower profitability for some agricultural sectors. Land value survey data from the USDA shows a 5% increase in average farm real estate values from June 2023 to June 2024. Annual farm real estate value gains were highest in the Southeast (9.4%) and the Southern Plains (7.5%) and still strong but slowing in the Lake states (4.3%), the Corn Belt (3.7%), and the Southeast (2.4%).

Farmland value growth rates moderated in the second half of 2024 in the face of continued higher market interest rates and stagnating prices for some commodities. The Federal Reserve Bank of Chicago AgLetter reported farmland values declined 1% in the Seventh District (primarily Iowa, Indiana, Illinois, and Wisconsin) in 2024. This was the first decline in 5 years following several years of strong growth. Data from the Federal Reserve Bank of Kansas City showed that land values continued to grow in the Tenth District (primarily Kansas, Missouri, Nebraska, and Oklahoma), albeit only a modest 0.1% in 2024. The growth rate in both regions has trended consistently lower in the last several years, and growth rates in land values could remain subdued in 2025. Lower prices for some commodities and an elevated interest rate environment represent headwinds to farmland values, particularly in states like California. A relatively low supply of available farmland in many regions and persistent demand for the asset class across a wide variety of investors could help maintain balance in the farmland transaction markets.

While regional averages for farmland values generally provide a good barometer for the overall changes in U.S. farmland values, economic forces affecting land markets are highly localized, and some markets may experience greater volatility in farmland values than state or national averages indicate. Based on our robust collateral underwriting standards, we believe that our loan collateral is well-positioned to endure reasonably foreseeable volatility in farmland values that could result from external factors.

Markets and Weather

Exogenous factors facing farm and food producers can create uncertainty and market instability within the sector. Some of the external market conditions that have and could continue to adversely affect the farm and food sectors during 2025 include foreign trade and trade policy, supply chain disruptions, and weather and environmental conditions. The U.S. agricultural sector has become increasingly dependent on foreign markets as a source of demand, making trade policy an important consideration for farms and food. The USDA projects that U.S. agriculture exports will drop to $170.5 billion in 2025, 3% lower than 2024 and down 13% relative to peak levels in 2022. This forecast did not contemplate the potential effects of the Administration's current policies and proposals on tariffs and trade restrictions, so the forecast could shift depending on the implementation of future trade policies. Through February 2025, agricultural export values were 8% lower in 2025 relative to 2024. Slower global growth could be a headwind for consumer-oriented products like animal proteins, dairy, fruits, and nuts. Ukrainian corn and wheat export shipments continue to rebound and have approached pre-2022 levels in recent months. Looking ahead, economic and geopolitical uncertainties could lead to higher volatility for the U.S. dollar through 2025.

Severe weather conditions continue to shape agricultural sectors. In 2024, the U.S. experienced 27 separate billion-dollar weather disasters, as tracked by the National Oceanic and Atmospheric Administration. Many of those events affected agriculture, including midwestern storms, flooding, western wildfires, excessive heat, and drought. Through March 31, 2025, Farmer Mac's portfolio had not experienced any material performance degradation as a result of these events. Federal crop insurance provides a strong mitigator against this risk, but farmers and ranchers face increasingly severe weather incidents and production volatility.

Drought conditions increased modestly in intensity and prevalence in first quarter 2025, largely across several western and southwestern states. Nearly one-quarter of California was classified as in severe drought in first quarter 2025, up from 0% at the beginning of 2024. Farmer Mac had minimal exposure to the areas affected by the southern California wildfires in early 2025. Texas has also seen drought conditions intensify with nearly half the state experiencing severe drought conditions or worse in first quarter 2025. As of April 15, 2025, 20% of the continental U.S. was classified as being in severe to exceptional drought according to data from the National Center for Environmental Information, the National Drought Mitigation Center, USDA, and NOAA.

For loans in areas that commonly experience exceptional drought (primarily in California), Farmer Mac's underwriting standards include an assessment of anticipated long-term water availability for the related property and how water availability impacts the collateral value and the borrower's liquidity position to mitigate that risk.

Agricultural Processing and Food Supply Chain

The production of food, feed, fiber, and biofuels has been economically viable in the past few years, but some factors continued to evolve into 2025. Rising consumer inflation boosted the profitability of the food processing and supply chains in 2021 and 2022. Moderating consumer prices in 2023 and 2024 increased the volume of consumer spending but also limited the profit expansion of food and fiber businesses. Biofuels have gained demand due to low-carbon regulations in several states and incremental tax benefits for the production of renewable diesel and sustainable aviation fuel. A large number of planned biofuel projects and new facilities for 2025 could provide support for raw materials such as corn and soybeans, but markets for these fuels are nascent and could evolve or erode rapidly in the coming quarters. Trade policy uncertainty, labor availability, changes to consumer demand due to health policy and pharmaceuticals, and a high risk of global economic stress could pose challenges for these sectors in 2025 and 2026. Nonetheless, consumer spending held steady throughout 2024 and has advanced in early 2025, providing stable conditions for value-added food, feed, fiber, and biofuel consumption. Credit demand in these sectors could grow in the next few quarters if interest rate policy maintains course, inflation rises again, mergers and acquisitions activity increases, or economic and trade policy uncertainty clear up.

Infrastructure Finance Industry Outlook

Power & Utilities

Economic conditions affecting rural power and electricity markets typically follow those in the general economy. According to data from the U.S. Energy Information Administration, sales and the revenue from the sale of electricity to customers advanced in 2024, with an annual increase in sales of 2.2% and an increase in revenue of 3.5%, respectively, in the last 12 months through January 2025 compared to January 2024. This increase was the result of higher residential and commercial electricity sales combined with slightly higher average prices paid for electricity relative to 2024. Higher energy input prices, such as natural gas and coal, became a headwind in 2022. After two years of increased prices and heightened volatility, oil and natural gas prices moderated throughout much of 2023 and 2024. Continued geopolitical uncertainty in the Middle East and Eastern Europe could increase energy price volatility, but power producers are generally able to pass higher input costs through to retail electricity prices as evidenced by higher retail electricity prices in 2022 and parts of 2023. Through March 31, 2025, Farmer Mac had not observed material degradation in the financial performance of its Power & Utilities loans, and that portfolio has never had a serious delinquency or default since its inception. Credit demand for electric cooperatives will likely be tied to ongoing normal-course capital expenditures related to maintaining and upgrading utility infrastructure. These growth opportunities may be affected by the demand for electric power in rural areas, increased power demand from regional data centers, capital expenditures by electric cooperatives driven by regulatory or technological changes, the changing interest rate environment, increased policy initiatives to support rural connectivity, and competitive dynamics within the rural utilities cooperative finance industry. Generally, these investments are expected to continue at, or above, historical levels based on the replacement and modernization of existing and new infrastructure.

Renewable Energy

Growth in renewable energy generation and deployment of energy storage technologies has the potential to continue to deepen Farmer Mac's relationships with existing customers through new business opportunities. According to data from the U.S. Energy Information Administration, renewable electricity capacity is expected to grow by 128% in the next ten years, compared to total electric capacity growth of 46%. The volatile cost of fossil fuel-based inputs combined with the falling costs of renewable power generation may influence this change in capacity. Analysis from Bloomberg New Energy Finance (BNEF) estimates that investors will put $1.4 trillion into U.S. renewable power projects between 2025 and 2050, although some of these estimates are based on the availability of investment tax credits that are subject to future changes in tax policy. If realized, persistent growth in renewable energy capacity could continue to broaden Farmer Mac's customer base focused on financing renewable energy projects and companies. In response to this expected growth, Farmer Mac has hired industry-specialized staff and deployed new financing products tailored to the renewable energy sector, which represents a new and growing market opportunity for Farmer Mac.

Broadband Infrastructure

Rural telecommunication and data connectivity has proven to be of vital economic importance in the last decade, as more households and agricultural enterprises require more data and connectivity to thrive. The rapid growth in digital technologies, including the ongoing interest and investment in artificial intelligence, advancements in cloud computing, and wireless network densification, will require significantly more computing and storage capabilities as well as investment in additional fiber network capacity. These industry tailwinds are creating additional investments in rural telecommunications infrastructure by cooperative and non-cooperative providers, which is aided by access to many federally funded programs, such as USDA's Broadband Equity Access and Deployment Program (BEAD), the Federal Communications Commission's Rural Digital Opportunity Fund (RDOF), the USDA’s ReConnect program, and the USDA’s Telecommunications Infrastructure Loan and Loan Guarantee program. In addition to capital projects spurred by these programs, Farmer Mac could see an increase in financing opportunities for other telecommunications providers in rural areas, with fiber line expansion, wireless broadband deployment, industry consolidation and efficiency through mergers and acquisitions, and data processing center buildouts all increasingly important to rural economic opportunity and the constant connectivity required by the food and agriculture industries. However, some types of "leapfrog" technology advances in the broadband infrastructure sector, such as low orbit satellite communication systems, could put pressure on the profitability of the providers of older digital technologies.

The change in U.S. political leadership as a result of the 2024 elections may introduce both opportunities and challenges for the infrastructure sector. Changes in tax policy as well as trade and immigration laws could result in significant impacts to infrastructure borrowers, especially for renewable energy projects. These changes could lead to delays in completing current projects and slow future investments in renewable energy and battery storage projects as well as the deployment of fiber and broadband infrastructure in rural areas. Any lack of availability or increased costs of components or technology that results from tariffs or trade restrictions also could lead to delays in completion or slow future investments in infrastructure projects. The infrastructure sector may experience varying degrees of disruption and adaptation in response to these evolving policies, and these changes could increase the volatility of sector profitability in the near-term. The potential for disruption in these sectors due to policy changes may be somewhat mitigated by the historically strong market demand for connectivity, the ongoing diversification of infrastructure providers, and continued strong investments in data centers and fiber infrastructure.

Legislative, Regulatory, and Political Outlook

Farmer Mac continues to closely monitor executive branch actions and potential legislative and regulatory changes that could significantly impact the organization, its regulatory environment, the borrowers under the loans it owns or guarantees, or its stakeholders, including:

•On April 2, 2025, the Administration issued an executive order unveiling a wide-ranging tariff plan. The order invokes authorities under the International Emergency Economic Powers Act of 1977 (IEEPA) and cites that a lack of reciprocity and persistent trade deficits are a threat to U.S. national security. Using the IEEPA authority, the Administration placed a universal tariff of 10 percent on all countries. These new tariffs were set to take effect on April 5, 2025. Major U.S. trading partners announced retaliatory tariffs in response, and the U.S. government responded in kind. On April 9, 2025, the United States government paused the retaliatory tariffs on dozens of U.S. trading partners for 90 days, leaving in place the universal 10 percent tariff announced on April 2, 2025, as well as previous tariffs that were in place. The 90-day pause on reciprocal tariffs did not apply to China, which is a large export market for U.S. agricultural goods.

Export markets drive demand for some U.S. agricultural products such as almonds, pistachios, grains, and livestock. Tariffs and trade restrictions may lead to higher domestic inventory levels of agricultural commodities, resulting in lower prices which may affect the profitability of farmers and ranchers. Reciprocal tariffs may impact the cost and availability of some farm inputs such as fertilizers, pesticides, and machinery, impacting farmers with tight profit margins. While tariffs and trade restrictions may create uncertainty for the agricultural economy, new trade agreements could boost demand for U.S. commodities in the long-term if foreign barriers are reduced.

Tariffs and trade restrictions also may lead to supply chain disruptions for materials and technology used in some renewable energy and broadband infrastructure projects that may result in higher material and project costs while the market adjusts.

Farmer Mac will continue to closely monitor trade developments throughout 2025.

•On January 20, 2025, President Trump designated Jeffery Hall, who had already been serving on the board of the Farm Credit Administration (FCA), as the board chairman and CEO of FCA, the safety and soundness regulator of Farmer Mac. On March 31, 2025, FCA board member Vincent Logan announced his retirement from federal service. His departure creates a vacancy on the FCA board that the Administration will have the opportunity to fill, subject to the advice and consent of the U.S. Senate. The remaining two board members, including Chairman Hall, are currently serving in a "holdover status." These members will continue in their roles until the President nominates and the U.S. Senate confirms their replacements.

•FCA's final rule on cyber risk management became effective on January 1, 2025. Farmer Mac does not expect this new rule to have a significant effect on its business practices or operations, as most of the rule's requirements had already been implemented by Farmer Mac before the rule's effective date.

•On April 21, 2025, Paul Atkins was sworn in as the Chairman of the Securities and Exchange Commission (SEC).

•Congress is expected to consider a number of significant issues during 2025, including the expiring provisions of the Tax Cuts and Jobs Act of 2017, the debt ceiling, annual spending bills, and the reauthorization or extension of the farm bill. The farm bill, an omnibus legislative bill supporting farmers' profitability, rural community vitality, and infrastructure modernization, is typically updated by Congress every five years. The 2018 farm bill has been extended by one year twice to allow Congress more time to develop new policies to improve the farm safety net, address critical infrastructure, expand trade, and support food insecurity. The current one-year extension of the 2018 farm bill will expire on September 30, 2025. If Congress does not pass a new farm bill or extend the 2018 farm bill by December 31, 2025, federal agricultural policy will revert to 1930s-era policy, which provides no price support for many key commodities.

•Farmer Mac continues to work with stakeholders and Congress on changes to its charter in the farm bill reauthorization to better support lenders serving rural areas. Any changes would require Congressional approval and the President's signature.

•Farmer Mac will continue to monitor Congress’s consideration of tax policy in 2025. Several provisions of the Tax Cuts and Jobs Act of 2017 are scheduled to expire in 2025. Congress is likely to address the expiration of these policies and possibly address other tax policies that may directly affect Farmer Mac, such as the corporate tax rate and potential exemptions for income generated from loans secured by agricultural real estate.