The U.S. Farm Credit System, a government-sponsored enterprise and the single largest lender to U.S. agriculture business, on Wednesday reported a rise in fourth-quarter net earnings, as crop insurance helped boost farmers' income amid the worst drought to hit the United States in more than 50 years.
The System, which uses proceeds from debt securities issued to domestic and foreign investors to fund farmers and agribusiness, earned $960 million for the October-December period of 2012, up 1.5 percent from $946 million last year.
Annual earnings for 2012 rose to $4.118 billion, or 4.5 percent to $3.940 billion.
"Despite the extensive drought in certain areas of the U.S., particularly in the Midwest, that reduced crop yields and increased crop prices, most crop and livestock producers' incomes remained favorable as they took advantage of risk management tools such as crop insurance and hedges of input costs," Tracey McCabe, CEO of the Federal Farm Credit Banks Funding Corporation, which funds FCS' securities, said in a statement.
While the drought has eased in some areas of the corn belt, conditions remain dry and may put pressure on some Farm Credit borrowers and operations in 2013, she added.
Full-year earnings reflected a rise in net interest income of $218 million, a $117 million drop in the provision for loan losses as well as a $47 million decrease in provision for income taxes.
Offsetting these partially was increased noninterest expense of $138 million and a drop in noninterest income of $66 million.
Net interest earnings were $6.477 billion for 2012, a 3.5 percent rise from $6.259 billion in 2011.
For the fourth quarter, net income grew $14 million, reflecting a net interest income of $95 million and a decrease of $51 million in the provision for income taxes. That was partially offset by a $52 million rise in noninterest expense, a $47 million increase in the provision of loan losses and a $33 million decrease in noninterest income.
Gross loans rose $17.240 billion, or 9.9 percent to $191.904 billion at Dec. 31, 2012, compared to $174.664 billion at December 31, 2011.
The jump reflected an increase in real estate mortgage, production, agribusiness and energy loans.
"Real estate mortgage loans increased as a result of increased business activity for cropland in the Midwest and increased land transactions late in 2012 related to the uncertainty regarding tax law changes after year end," the FCS said.
Production loans increased as farmers prepaid 2013 planting supplies as part of their tax planning strategies.
Cash and investments fell $353 million to $46.928 billion at December 31, 2012, as compared with $47.281 billion at year-end 2011.
"Overall, agricultural borrowers' financial conditions remained very favorable due to the high levels of farmers' net cash income over the past several years," Farm Credit said.
Earlier this month the U.S. Department of Agriculture forecast 2013 U.S. net farm income to rise 15 percent to $128.2 billion, based on booming grain and meat exports as well as biofuels demand. Those fundamental factors have driven a six-year commodity boom and led to record grain and farmland prices.