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Freddie Mac may be on the skids, but Farmer Mac — a similar program set up by the Feds in 1989 to provide a secondary market for farm loans — should have been doing well, according to articles at Forbes and the WSJ. But it’s not.

Thanks to a big boom in grain prices over the past few years, the delinquency rate on the $9.5 billion farm and rural loans at Farmer Mac is at an all time low. So why did they need a $65 million influx of cash from farm lenders this week? Easy — a big hunk of this Mac’s assets were tied up in 1 million shares of Fannie Mae and $60 million in Lehman debt securities. Oops.

So what do the banks get for their generous $65 million support, which brings Farmer Mac’s capital to $210 million (a mere $29 million more than the statutory requirement)? Preferred stock, for one, that comes with a 10 percent annual dividend. Henry Edelman, CEO of Farmer Mac since it started, is out and the lenders get to name three observers to the board.

Like all of us have learned at legislative gunpoint the past week or two, credit is vital to the operation of our economy, even in a time of high income for farmers. The cost of farming is going up at a rate (the USDA predicts a 16% increase this year) that will soon erode the benefits of high grain prices. And what’s the classic way for the rarely profitable farming industry to cope with that? Loans.

Sounds like a good deal for the banks, at least as long as the World Food Crisis keeps prices high.

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