Mainstreet Economy

Rural Mainstreet Index Indicates Economic Weakness:|
More Than One-Half of Bankers Boosted Farm Loan Collateral Requirements

November Survey Results at a Glance:

* The overall index slipped from October’s weak reading and remained below growth neutral.
* The farmland price index fell below growth neutral for the 48th straight month.
* Approximately 22.5 percent of bankers increased farm loan rejection rates with the fall in farm income.
* More than one-half of bank CEOs boosted farm loan collateral requirements as farm income has weakened.
* The percentage of bankers projecting next year livestock revenues greater than costs fell to 9.2 percent from 18.9 percent reported last year at this time.

 
OMAHA, Neb. (Nov. 16, 2017) – The Creighton University Rural Mainstreet Index dipped from October’s weak reading and remained below growth neutral, according to the November monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.  
 
Overall: The index, like all indices in the survey, ranges between 0 and 100, slipped to 44.7 from 45.3 in October. 
 
“Since peaking in 2013, farm commodity prices have declined by approximately 17 percent and U.S. farm income has fallen for four straight years. Not surprisingly, Creighton’s overall Rural Mainstreet Index has risen above growth neutral only three times in the past three years,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business. 
 
Jeff Bonnett, president of Havana. National Bank in Havana, Illinois, “Many of our farm customers experienced record yields with this year's harvest. Like them, we are all hoping that this is enough to offset the yet again low commodity prices that challenge the Ag economy today.”
 
Bankers were asked this month how their bank has responded to the downturn in farm income. More than half, or 53.1 percent, reported increasing collateral requirements for farm loans. More than one in five, or 22.5 percent, indicated their bank had rejected a higher percent of farm loan applications. However, approximately one-third, or 34.7 percent, reported no change in farm loan terms and requirements.
 
Farming and ranching: The farmland and ranchland-price index for November fell to 36.5 from 39.3 in October. This is the 48th straight month the index has fallen below growth neutral 50.0.
 
Bankers were asked to project 2018 earnings for livestock producers. Approximately 9.2 percent projected negative cash flows for next year. This is roughly one-half of projections of negative cash flows for 2017 estimated in November 2016.
 
According to Todd Douglas, CEO of the First. National Bank in Pierre, South Dakota, “We see some intermediate debt restructure and expense control to make sure they (livestock producers) can operate with a positive cash flow based on real commodity prices. Most have enough room on their balance sheets to handle a short term commodity downturn, but at some point every operator will be negatively affected.
 
The November farm equipment-sales index sank to 26.2 from October’s 29.3. This marks the 51st consecutive month the reading has dropped below growth neutral 50.0.
 
Banking: Borrowing by farmers plummeted for November as the loan-volume index stood at 49.1 from 67.9 in October. The checking-deposit index rose to 59.4 from October’s 54.8, while the index for certificates of deposit and other savings instruments advanced to a weak 44.8 from 44.1 in October. 
 
Hiring: The employment gauge climbed to 57.6 from October’s 57.3. Rural Mainstreet businesses not linked to agriculture increased hiring for the month, and at a faster pace than in October.       
 
Confidence: The confidence index, which reflects expectations for the economy six months out, increased to a weak 40.6 from October’s 37.0, indicating a continued pessimistic outlook among bankers. “Concerns about trade, especially current NAFTA negotiations, and low agriculture commodity prices impaired bankers’ economic outlook,” said Goss.
 
Home and retail sales: The home-sales index moved higher for the Rural Mainstreet economy for November, rising to 56.6 from October’s 52.5. The November retail-sales index improved slightly to 40.7 from 39.3 in October. “Much like their urban counterparts, Rural Mainstreet retailers are experiencing significant pullbacks in sales,” reported 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) improved to 44.8 from 42.1 in October.  The farmland and ranchland-price index expanded to 49.5 from October’s 49.0. Colorado’s hiring index for November climbed to 58.0 from October’s 55.9.
 
Illinois: The November RMI for Illinois decreased to 44.8 from 45.1 in October. The farmland-price index rose to 36.5 from 35.1 in October. The state’s new-hiring index rose to 58.1 from last month’s 56.6. Jim Eckert, president of Anchor State Bank, said, “Surprisingly, based on poor rains in our area, most of the corn crop was as good, or a little better than, last year's bumper crop. Soybeans yields were 10 to 15 percent below 2016, due to lack of rain in August and September.”
 
Iowa: The November RMI for Iowa slipped to 45.1 from 45.6 in October. Iowa’s farmland-price index for November increased to 36.6 from October’s 36.0. Iowa’s new-hiring index for November expanded to 58.7 from October’s 56.9.
 
Kansas: The Kansas RMI for November fell to 39.2 from October’s 42.2. The state’s farmland-price index sank to 34.8 from 37.2 in October. The new-hiring index for Kansas increased to 46.8 from October’s 43.6.
 
Minnesota: The November RMI for Minnesota fell to 44.2 from 50.9 in October. Minnesota’s farmland-price index declined to 36.3 from 39.6 in October. The new-hiring index for the state decreased to 56.8 from October’s 59.7. Lonnie Clark, president of State Bank of Chandler reported, “Crop input costs reluctantly beginning to drop, cash rents starting to drop, seed prices remain resistant to price drop.”
 
Missouri: The November RMI for Missouri advanced to a solid 56.8 from 49.2 in October. The farmland-price index slipped to 40.1 from 40.9 in October. Missouri’s new-hiring index declined to a still healthy 61.2 from 74.7 in October.
 
Nebraska: The Nebraska RMI for November declined to 45.6 from October’s 45.9. The state’s farmland-price index dipped to 36.8 from last month’s 39.7. Nebraska’s new-hiring index stood at a strong 59.6, but down slightly from 60.0 in October.
 
North Dakota: The North Dakota RMI for November increased to 50.5 from October’s 47.9. The state’s farmland-price index moved lower to 38.2 from 41.0 in October. North Dakota’s new-hiring index expanded to 69.3 from 66.5 in October.
 
South Dakota: The November RMI for South Dakota slumped to 39.6 from 43.8 in October. The state’s farmland-price index decayed to 35.0 from 38.3 in October. South Dakota's new-hiring index slumped to 47.7 from October’s 50.9.
 
Wyoming:
The November RMI for Wyoming slipped to 42.9 from 44.7 in October. The November farmland and ranchland-price index weakened to 36.0 from 38.3 in October. Wyoming’s new-hiring index slipped to 54.2 from October’s 54.9.
 
Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, Dec. 21.