The Rural Mainstreet Index moved to its lowest level in more than four years, according to the October 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, sank to 43.4, its lowest level since February 2010, and down from September’s 48.2.
“The stronger U.S. dollar, weaker global growth and abundant supplies have pushed U.S. grain prices down by more than 30 percent over the last 12 months. This has weakened the farm economy. Furthermore, the same factors have weakened oil prices and I expect these lower prices to begin negatively affecting areas of the region heavily dependent on energy commodity sales,” said Ernie Goss, Ph.D., the Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
Even so, some farmers have been protected from current low commodity prices. As indicated by Jeff Bonnett, president of Havana National Bank in Havana, Ill., “Many of our farm operators had sold a good portion of their (current) corn at $5, or a little over, going into this farm year. That will work in their favor with corn prices hovering between $2.75 to $3 at this time.”
Farming and ranching: The farmland and ranchland-price index for October slumped to 20.2, the lowest level since initiation of the survey in January 2006, and down from September’s 33.7. “Much weaker crop prices continue to take the air out of the bubble in agriculture land prices. This is the 11th straight month that the index has moved below growth neutral,” said Goss.
According to Michael Johnson, CEO of the Swedish American Bank in Courtland, Kan., “A quarter section of irrigated land sold last week. Price was down 25 to 30 percent. Most likely a result of much lower crop prices.”
Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., said, “Reduced commodity prices will stop farmland price increases and begin an erosion, especially in lower quality dirt, as well as driving cash rents slowly lower.”
The October farm-equipment sales index slumped to a record low 15.1 from 17.6 in September, also a record low. The index has been below growth neutral for 15 straight months. “This is lowest reading that we have recorded for the equipment index since we began the monthly survey in 2006. The more than 30 percent decline in agriculture commodity prices has pushed farmers to significantly shrink their equipment purchases,” said Goss.
This month bankers were asked to project farmland price changes for the next year. More than three-fourths of the bank CEOs expect farmland prices to decline over the next year with an average decline of 5 percent reported. Additionally, bankers expect cash rents to decline by an average 3.4 percent over the next year. This is down from an expected gain of one percent recorded in March of this year.
Furthermore, according to Jim Ashworth, president of CNB Bank Shares of Carlinville, Ill., “Although grain yields are very high, depressed prices could result in a decline in cash rents and land prices next year for the first time in many years.”
Banking: The October loan-volume index dipped to a still strong 71.7 from 75.9 in September. The checking-deposit index slipped to 49.1 from September’s 56.4, while the index for certificates of deposit and other savings instruments moved to a weak 40.4 from last month’s 42.8.
“According to bankers, there has been little change in the proportion of farmland purchases for cash. Approximately one-fourth of farmland sales in October and June were not financed. It is surprising that as crop prices have deteriorated, there has not been a significant change in the share of farmland purchases that are financed,” reported Goss.
Jim Eckert, president of Anchor State Bank in Anchor, Ill., said, “Declines in crop prices will be a damper on farm borrowings and incomes for the foreseeable future.”
Hiring: Rural Mainstreet businesses continue to hire at a solid pace, though the October hiring index declined to a solid 55.7 from September’s 56.5. “Businesses on Rural Mainstreet continue to add jobs at a healthy pace even with the weaker agriculture conditions. Year-over-year job growth for the region is approximately 1.3 percent, which is well above the historic average. I do expect this pace to weaken in the months ahead,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, rose to a very weak 34.6 from 33.4 in September. “Much weaker agriculture commodity prices negatively affected the outlook of bank CEOs over the last several months,” reported Goss.
Home and retail sales: The October home-sales index dipped to a 49.0 from September’s 57.3. The October retail sales index decreased to 44.4 from 49.9 in September. “Much like the national economy, the Rural Mainstreet economy is experiencing sub-par retail buying conditions,” said Goss.