Rural Mainstreet Index climbs
Bankers expect farm loan defaults to rise 5% in July survey
The Creighton University Rural Mainstreet Index increased to a weak level from June’s frail reading. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, July’s reading represented the fourth straight month with a reading indicating recessionary economic conditions.
The overall index for July climbed to 44.1, well below growth neutral, but up from June’s 37.9 and April’s record low 12.1. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.
“Farm commodity prices are down by 12.5% over the last 12 months. As a result, and despite the initiation of $16 billion in USDA farm support payments, only 6% of bankers reported their area economy had improved compared to June while 17.6% said economic conditions had worsened,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business, Omaha, Nebraska.
The bank CEOs were asked the current operation status of ethanol plants in their area. Almost a third of bankers with local ethanol plants reported current production shutdowns, either permanent or temporary.
Farming and ranching
Farmland prices continue to slide, with a July reading of 45.6, down from June’s 46.8. This is the 79th time in the past 80 months the index has been below growth neutral.
Falling agriculture commodity prices and farm income have failed to diminish annual farm rents per acre. This month bank CEOs reported average per acre farmland rents of $220 which is almost unchanged from that detailed earlier this year, and four years ago.
The July farm equipment-sales index increased to a weak 34.4 from 32.8 in June. This marks the 82nd straight month the reading has remained below growth neutral 50.0.
Banking
Borrowing by farmers expanded for July, but at a slower rate than in June. The borrowing index fell to 57.4 from June’s 63.6. The checking-deposit index declined to 64.7 from June’s 77.3, while the index for certificates of deposit and other savings instruments increased to 52.9 from 51.5 in June.
Bankers estimated that farm loan defaults would rise by 5% over the next 12- month period. This is up slightly from 4.8% registered one year ago.
Approximately 38% of bankers reported a decline in customer visits due to the coronavirus. Almost one-third of bank CEOs indicated that the coronavirus had reduced the number of farm loan applications.
Hiring
New hiring equaled layoffs for July with an index of 50.0 compared to June’s index of 51.5.
“Even so, data from the U.S. Bureau of Labor Statistics indicate that employment levels for the Rural Mainstreet economy are down by 372,000, or 8.5% compared to pre-COVID-19 levels. It will take many months of above growth neutral readings to get back to pre-COVID-19 employment levels for the region,” Goss said.
Confidence
The confidence index, which reflects bank CEO expectations for the economy six months out, improved slightly to 43.9 from June’s 43.8.
“Weak agriculture commodity prices, retail sales, and layoffs have diminished economic confidence among bankers,” Goss said. “Approximately 33.5% of bankers expect low commodity prices to be the greatest economic challenge over the next 12 months for their rural mainstreet bank.”
An estimated 18.2% of bankers named “competition from Farm Credit” as their bank’s greatest challenge over the next 12 months. According to one anonymous bank CEO in Nebraska, “Farm Credit has become very aggressive in northeast Nebraska. Long term loans at very low interest rates.”
Home and retail sales
The home-sales index rose to 68.2 from June’s 57.8. The retail -sales index for July expanded to a frail 41.2 from June’s 28.9.
“Business shutdowns linked to COVID-19 continue to harm the region’s retailers,” Goss said.
One anonymous banker said, “Residential real estate sales are robust. Despite the agricultural sector economic fundamentals, agricultural real estate values are firm.”
Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.
This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index is an index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300 people. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.
State reports
Colorado’s Rural Mainstreet Index for July rose to 31.9 from June’s 26.5. The farmland and ranchland-price index increased to 48.8 from 44.0 in June. Colorado’s hiring index for July expanded to 38.4 from June’s 26.5. Compared to the pre-COVID-19 level, the Colorado Rural Mainstreet economy is down by 52,000 jobs, or 15.5%.
The July RMI for Illinois advanced to 38.7 from 32.4 in June. The farmland-price index slipped to 44.5 from June’s 45.9. The state’s new-hiring index sank to 43.5 from 47.9 in June. Compared to the pre-COVID-19 level, the Illinois Rural Mainstreet economy is down by 106,000 jobs, or 8%.
The July RMI for Iowa increased to 43.1 from June’s 39.4. Iowa’s farmland-price index grew to 49.2 from June’s 48.3. Iowa’s new-hiring index for July fell to 43.4 from 51.9 in June. Compared to the pre-COVID-19 level, the Iowa Rural Mainstreet economy is down by 57,000 jobs, or 8.6%. Jim Eckert, president of Anchor State Bank in Anchor said, “Our immediate area is in a dry pocket again this year. Crops look good but are under severe stress due to lack of rain.”
The Kansas RMI for July rose to 46.4 from June’s 37.6. The state’s farmland-price index dipped to 47.0 from 47.7 in June. The new-hiring index for Kansas advanced to 54.4 from 45.5 in June. Compared to the pre-COVID-19 level, the Kansas Rural Mainstreet economy is down by 26,000 jobs, or 6.2%.
The June RMI for Minnesota increased to 37.2 from May’s 14.2. Minnesota’s farmland-price index climbed to 47.6 from 41.2 in May. The new-hiring index for June expanded to 33.2 from May’s 15.1. Compared to 12 months ago, employment in urban areas of the state, was down by 13.3%, while jobs for rural areas of the state were down by 11.9%.
The July RMI for Missouri rose to 38.4 from June’s 38.1. The farmland-price index sank to 44.4 from 47.8 in June. The state’s hiring gauge fell to 46.7 from 54.6 in June. Compared to the pre-COVID-19 level, the Missouri Rural Mainstreet economy is down by 27,000 jobs, or 8.6%.
The Nebraska RMI for July jumped to 49.3 from 41.8 in June. The state’s farmland-price index declined to 48.0 from last month’s 49.1. Nebraska’s new-hiring index jumped to 64.0 from June’s 59.4. Compared to the pre-COVID-19 level, the Nebraska Rural Mainstreet economy is down by 14,000 jobs, or 4.9%.
The North Dakota RMI for July rose to 41.4 from June’s 38.3. The state’s farmland-price index decreased to 45.4 from 47.9 in June. The state’s new-hiring index moved downward to 37.8 from June’s 47.7. Compared to the pre-COVID-19 level, the North Dakota Rural Mainstreet economy is down by 13,000 jobs, or 8.1%.
The July Rural Mainstreet Index (RMI) for South Dakota climbed to 50.7 from June’s 44.9. The state’s farmland-price index sank to 48.5 from June’s 50.1. South Dakota’s new-hiring index increased to 68.6 from June’s 57.2. Compared to the pre-COVID-19 level, the South Dakota Rural Mainstreet economy is down by 12,000 jobs, or 5.9%.
The July RMI for Wyoming advanced to 44.5 from June’s 38.3. The July farmland and ranchland-price index decreased to 46.4 from 47.9 in June. Wyoming’s new-hiring index increased to 48.0 from June’s 47.9. Compared to the pre-COVID-19 level, the Wyoming Rural Mainstreet economy is down by 11,000 jobs, or 5.7%.
