OMAHA, Neb. – The Rural Mainstreet Index moved to its lowest level in almost two years, according to the August survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. The index has been trending lower since June 2013 when the reading stood at 60.5.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, fell to 48.3 from July’s 51.8.
“Agriculture commodity prices have plummeted for crop farmers in our region and are expected to move even lower in the months ahead. This decline has spilled over into the broader rural economy according to our survey. With record crop supplies anticipated by analysts, I expect readings to move even lower in the months ahead,” said Ernie Goss, Ph.D., the Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
According to Jim Ashworth, president of CNB Bank Shares of Carlinville, Ill., “Ideal growing conditions in mid-Illinois all season have renewed competitive loan pricing pressure in all our markets.”
Other parts of the region have not been as fortunate in terms of yields. For example, David Callies, CEO of Miner County Bank in Howard, reported, “Our area is very dry. Reduced yields and low crop prices will have a very negative impact on our area economy.”
Farming and ranching: The farmland and ranchland-price index for August slumped to 41.4, from July’s 48.3. “Much weaker crop prices are taking the air out of agriculture land prices. This is the ninth straight month that the index has moved below growth neutral,” said Goss.
This month, bankers were asked to project farmland prices for the next 12 months. On average, bank CEOs expect farmland prices to fall by 4.8 percent. Just six months ago, bankers expected a decline of 3.2 percent over the next 12 months. “Clearly, bankers are becoming more pessimistic regarding the trend in farmland prices,” said Goss.
Despite the decline in farmland prices over the past nine months, cash rents on farmland expanded from $258 per acre in March of this year to $285 in August. “This will place a financial pinch on the farmer renting land and selling at today’s slumping crop prices,” said Goss.
The August farm-equipment sales index slumped to a record low 25.5 from July’s very weak 33.4. The index has been below growth neutral for 13 straight months. “This is lowest reading that we have recorded for the equipment index since we began the monthly survey in 2006. The rapid decline in agriculture commodity prices is causing farmers to become more cautious in their equipment purchase,” said Goss.
Banking: The August loan-volume index declined to a still strong 73.4 from 79.8 in July. The checking-deposit index fell to 46.7 from July’s 53.5, while the index for certificates of deposit and other savings instruments dipped to 32.5 from last month’s 37.8.
Larry Rogers, executive vice-president of First Bank of Utica, Neb., expects massive federal education loan forgiveness programs before the November elections.
According to bankers, approximately 26 percent of recent farmland sales were for cash (not financed). This is down from 29 percent reported last year. “The percent of farmland sales that is financed is growing, albeit at a slow pace, according to our surveys,” reported Goss.
“We continue to track significant growth in borrowing by farmers in the region as farmers selling at today’s crop commodity prices have moved below breakeven for most crops. Lending is likely to continue to expand as a result of low crop commodity prices in the pipeline
Hiring: Rural Mainstreet businesses continue to hire at a solid pace, though the August hiring index declined to a solid 56.8 from July’s 59.7. “Despite weaker conditions in the crop farming sector, businesses in the Rural Mainstreet economy are adding jobs at a healthy pace,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, plummeted to 39.9 from last month’s 42.9. “Much weaker agriculture commodity prices negatively affected the outlook of bank CEOs and more than offset an improving outlook for livestock producers with inventories,” said Goss.
Home and retail sales: The August home-sales index dipped to a still healthy 59.5 from 64.1 in July. The August retail sales index sank to 47.5 from 55.4 in July. “Much like the national economy, the Rural Mainstreet economy is experiencing sub-par buying conditions even with back to school sales,” said Goss.