The Rural Mainstreet Index moved to its lowest level in more than two years, according to the September 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 slightly to 48.2 from August’s 48.3.
“From this time last year, grain prices are down by an average of 29.4 percent according to government data. This huge decline has had a significant negative influence on most of the factors from our surveys over the last several months,” said Ernie Goss, Ph.D., the Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
Jeff Bonnett, president of Havana National Bank in Havana, Ill., said “As our farm lenders have pointed out, if current grain prices do not rebound in 2015, cash flow monitoring for our farm operators will be our major challenge.”
Farming and ranching: The farmland and ranchland-price index for September slumped to 33.7, its lowest level since March 2009 and down from 41.4 in August. “Much weaker crop prices are taking the air out of agriculture land prices. This is the tenth straight month that the index has moved below growth neutral,” said Goss.
The September farm-equipment sales index slumped to a record low 17.6 from August’s 25.5, which was a record low. The index has been below growth neutral for 14 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 has pushed farmers to shrink their equipment purchases,” said Goss.
This month bankers were asked to project farm equipment sales for the next year. Approximately 94.4 percent expect farm-equipment sales to decline for the next year. Only 3.7 percent of the bank CEOs expect an increase in farm-equipment sales for the next year. On average, bankers expect a 13.8 percent decline in farm-equipment sales for the next year.
Larry Rogers, executive vice-president of First Bank of Utica, Neb., reported used combine sales prices were no more than 50 percent of what they were last year at this time.
One banker reported that farm-equipment sales for next year will depend on what the U.S. Congress does in terms of accelerated depreciation.
Banking: The September loan-volume index advanced to a strong 75.9 from 73.4 in August. The checking-deposit index expanded to 56.4 from August’s 46.7, while the index for certificates of deposit and other savings instruments moved to a weak 42.8 from last month’s 32.5.
“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.”
According to bankers, one-fourth of recent farmland sales were for cash (not financed). This is down from 29 percent reported last year at this time and lower than the 26 percent reported last month. “The percent of farmland sales that is financed is growing, but at a very slow pace, according to our surveys. Plummeting grain prices have yet to push farmers into boosting borrowing to support farmland purchases,” reported Goss.
Hiring: Rural Mainstreet businesses continue to hire at a solid pace, though the September hiring index declined to a solid 56.5 from August’s 56.8. “Despite weaker conditions in the crop farming sector, businesses in the Rural Mainstreet economy are adding jobs at an annualized pace of 1.6 percent which is well above the historical average,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, plummeted to 33.4 from last month’s 39.9. “Much weaker agriculture commodity prices negatively affected the outlook of bank CEOs and more than offset an improving outlook for livestock producers,” reported Goss.
Home and retail sales: The September home-sales index dipped to a still solid 57.3 from 59.5 in August. The September retail sales index grew to 49.9 from 47.5 in August. “Much like the national economy, the Rural Mainstreet economy is experiencing sub-par retail buying conditions,” said Goss.
Jim Eckert, president of Anchor State Bank in Anchor, Ill., said, “Recent declines in crop prices will undoubtedly result in less farmer spending for equipment and consumer goods.” Eckert expects land prices and cash rents to decline as well.