Dec. 24, 2019
Source: Creighton University news release
Omaha, NE - The Creighton University Rural Mainstreet Index (RMI) for December remained above growth neutral for the fourth straight month and for the 10th time in the past 12 months, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: While the overall index for December fell to 50.2 from 54.2 in November, it marked the tenth time in 2019 that the index has remained above growth neutral 50.0.
"Federal agriculture crop support payments and somewhat higher grain prices have boosted the Rural Mainstreet Index above growth neutral for the month."
"Bank CEOs, on average, expect approximately 12.4% of grain farmers to experience financial losses for 2020. However, this is down from last year at this time when bankers projected 15.3% of grain farmers to experience negative cash flows for 2019," said Ernie Goss, PhD, 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, reported, "If grain prices remain where they are today, we will have a small percentage of our Ag borrowers struggle with cashflow."
Farming and ranching: The farmland and ranchland-price index soared to 52.8 from November's weak 40.4. This is the first time since November 2013 that the index has risen above growth neutral, 50.0.
The November farm equipment-sales index sank to 27.9 from November's 37.5. This marks the 75th month that the reading has remained below growth neutral 50.0.
Banking: Borrowing by farmers weakened again from December. The borrowing index declined to 50.0 from November's 51.4. The checking-deposit index fell to a still strong 61.1 from November's 68.1, while the index for certificates of deposit and other savings instruments slipped to 50.0 from 51.4 in November.
This month, bankers were asked to project the level of farm loan defaults for 2020. "One of nine bank CEOs expect 2020 farm loan defaults to expand by 10% to 20%. On average bankers expect 2020 farm loan defaults to grow by approximately 4.0%. This is down from an anticipated gain of 4.4% for 2019 recorded last December," said Goss.
Bankers were also asked about their bank's response to weak farm income. Almost two-thirds, or 65.7%, indicated their bank had increased collateral requirements, while 34.3% reported that their bank had rejected a higher percentage of farm loan applications.
Hiring: The employment gauge declined to a still healthy 60.0 from November's 65.3. Despite the trade war and weaker manufacturing in rural areas, Rural Mainstreet businesses continue to hire at a solid pace.
Over the past 12 months, the Rural Mainstreet economy added jobs at a 0.8% pace, or below the pace of urban area growth of 1.1% for the same period. Rural areas of two Mainstreet states, Iowa, and North Dakota, lost jobs over the past 12 months.
Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, increased to a still weak 45.8 from November's 44.4, and continues to indicate a negative economic outlook among bankers. "The trade war with China and the lack of passage of the USMCA (NAFTA's replacement) continued to dampen the economic outlook for the region," said Goss.
According to Lonnie Clark, President of the State Bank of Chandler in Chandler, Minnesota," The China trade issues need to come to a final resolution soon to take this stress off our farmers."
Home and retail sales: The home-sales index climbed to a healthy 58.6 from November's 55.7. The retail sales index for December increased to 51.4 from 50.0 in November.
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.