Mainstreet Economy

Rural Mainstreet Index Climbs for June: One-Third of Bankers Report Ethanol Plant Shutdowns

June Survey Results at a Glance:

  • Overall index advanced to a weak level. More than three fourths of bank CEOs reported an economic downturn in their local area.
  • Almost one-third of bankers with local ethanol plants reported current production shutdowns, either permanent or temporary.
  • 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.
  • More than one-fourth, or 27.3%, of bankers indicated that rising loan defaults represented the biggest challenge for their banks for the next 12 months.

OMAHA, Neb. (June 18, 2020) - The Creighton University Rural Mainstreet Index (RMI) increased to a weak level from May’s feeble reading. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, June’s reading represented the third straight month with recessionary economic conditions.

Overall: The overall index for June climbed to 37.9, well below growth neutral, but up from May’s 12.5 and April’s record low 12.1. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

“Even with a slight recent rebound in prices, farm commodity prices are down by 7.3% over the last 12 months. As a result, and despite the initiation of $16 billion in USDA farm support payments, only 3% of bankers reported positive economic growth,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

This month bank CEOs were asked the current operation status of ethanol plants in their area. Almost one-third of bankers with local ethanol plants reported current production shutdowns, either permanent or temporary.

Farming and ranching: Farmland prices continue to slide, but at a slower pace, with a June reading of 46.8 up from May’s 39.7. This is the 78th time in the past 79 months the index has been below growth neutral.

The June farm equipment-sales index increased to a weak 32.8 from 21.9 in May. This marks the 81st straight month the reading has remained below growth neutral 50.0.

Banking: Borrowing by farmers expanded for June, but at a slower rate than in May. The borrowing index fell to 63.6 from May’s 72.2. The checking-deposit index declined to 77.3 from May’s 86.1, while the index for certificates of deposit and other savings instruments increased to 51.5 from 48.6 in May.

Todd Douglas, CEO of the First National Bank in Pierre, South Dakota, said, “Loan volume and checking deposits were impacted by the PPP loan program causing spikes in deposit growth until the businesses spent the money. We expect deposits to decrease in the next 45 days while the loans will remain elevated until borrowers get the debt forgiveness from the US Govt.”

More than one-fourth, or 27.3%, of Rural Mainstreet Bank CEOs expect farm loan defaults/foreclosures to be the greatest economic challenge for their area of the next 12 months.

Hiring: New hiring exceeded layoffs for June with an index of 51.5, up from May’s frail 17.1 and April’s record low 9.4. “Even so, data from the U.S. Bureau of Labor Statistics indicate that employment levels for the Rural Mainstreet economy are 12.0% below their year ago levels. It will take many months of above growth neutral readings to get back to pre-covid-19 employment levels for the region,” said Goss.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, improved to 43.8 from May’s 22.1. “Weak agriculture commodity prices, and layoffs have decimated economic confidence among bankers,” said Goss.

“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,” said Goss.

Approximately 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 increased to 57.8 from May’s 48.6. The retail -sales index for June expanded to a frail 28.9 from May’s 11.1. Business shutdowns linked to COVID-19 continue to devastate the region’s retailers,” said Goss.

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 (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. 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.

Below are the state reports:

Colorado: Colorado’s Rural Mainstreet Index (RMI) for June rose to 26.5 from May’s 9.8. The farmland and ranchland-price index increased to 44.0 from 38.4 in May. Colorado’s hiring index for June expanded to 38.4 from May’s 6.5. Compared to 12 months ago, employment in urban areas of the state, was down by 9.7%, while jobs for rural areas of the state were down by 18.7%.

Illinois: The June RMI for Illinois advanced to 32.4 from 8.7 in May. The farmland-price index climbed to 45.9 from May’s 38.0. The state’s new-hiring index expanded to 47.9 from 2.7 in May. Compared to 12 months ago, employment in urban areas of the state, was down by 12.9%, while jobs for rural areas of the state were down by 14.4%.

Iowa: The June RMI for Iowa increased to 39.4 from May’s 8.2 Iowa’s farmland-price index grew to 48.3 from May’s 37.9. Iowa’s new-hiring index for June climbed to 51.9 from 19.4 in May. Compared to 12 months ago, employment in urban areas of the state, was down by 13.2%, while jobs for rural areas of the state were down by 10.9%. According to James Brown, CEO of Hardin County Savings Bank in Eldora, “We are closely monitoring the conditions in the ag sector to be sure we are adequately funded in our loan loss reserve.”

Kansas: The Kansas RMI for June rose to 37.6 from May’s 9.2. The state’s farmland-price index expanded to 47.7 from 38.1 in May. The new-hiring index for Kansas advanced to 45.5 from 3.4 in May. Compared to 12 months ago, employment in urban areas of the state, are down by 9.3%, while jobs for rural areas of the state were down by 9.7%.

Minnesota: 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%.

Missouri: The June RMI for Missouri rose to 38.1 from May’s 15.3. The farmland-price index increased to 47.8 from 43.2 in May. The state’s hiring gauge climbed to 54.6 from May’s 11.2. Compared to 12 months ago, employment in urban areas of the state, was down by 11.4%, while jobs for rural areas of the state were down by 11.3%.

Nebraska: The Nebraska RMI for June jumped to 41.8 from 10.0 in May. The state’s farmland-price index rose to 49.1 from last month’s 38.5. Nebraska’s new-hiring index vaulted to 59.4 from May’s 7.2. Compared to 12 months ago, employment in urban areas of the state, was down by 8.6%, while jobs for rural areas of the state were down by 6.5%.

North Dakota: The North Dakota RMI for June rose to 38.3 from May’s 11.4. The state’s farmland-price index expanded to 47.9 from 38.9 in May. The state’s new-hiring index moved upward to 47.7 from May’s 11.7. Compared to 12 months ago, employment in urban areas of the state, was down by 9.8%, while jobs for rural areas of the state were down by 10.9%.

South Dakota: The June Rural Mainstreet Index (RMI) for South Dakota climbed to 44.9 from May’s regional high of 19.3. The state’s farmland-price index increased to 50.1 from May’s 41.6. South Dakota’s new-hiring index rose to 57.2 from May’s 12.1. Compared to 12 months ago, employment in urban areas of the state, was down by 9.3%, while jobs for rural areas of the state were down by 6.4%.

Wyoming: The June RMI for Wyoming advanced to 38.3 from May’s 11.6. The June farmland and ranchland-price index rose to 47.9 from 39.0 in May. Wyoming’s new-hiring index increased to 47.9 from May’s 12.3. Compared to 12 months ago, employment in urban areas of the state, was down by 8.1%, while jobs for rural areas of the state were down by 9.8%.

Tables 1 and 2 summarize the survey findings. Next month's survey results will be released on the third Thursday of the month, July 16.