Rural Bankers Report Extensive Farm Loan Restructuring

Posted on 05/21/2020 10:29 AM

A monthly survey of rural bankers finds nearly three-quarters restructured farm loans for the current cropping season. Creighton University’s Dr. Ernie Goss, who conducts the monthly survey, notes: “Since this time last year, livestock and grain prices have sunk by 19.1% and 4.7%, respectively. Accordingly, approximately 73% of bankers reported restructuring farm loans. As a result of the restructuring, bank CEOs expect farm loan defaults to expand by only 5.4% in the next 12 months.”

The monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy results in the Rural Mainstreet Index (RMI), which increased in May to 12.5 from April’s record low 12.1. The RMI remains down significantly from March’s weak 35.5. May’s reading represented the third straight month with close to record lows. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.   

Jeff Bonnett, president of Havana National Bank in Springfield, Illinois, expects the Rural Mainstreet economy to be up six months from now if the covid-19 lockdown has ended.

The RMI’s farmland index continues to slide, Goss states. May’s reading fell to 39.7 from April’s 40.9. This is the 77th time in the past 78 months the index has been below growth neutral.

The May farm equipment-sales index increased slightly to 21.9 from 20.0 in April. This marks the 80th month straight month that the reading has remained below growth neutral 50.0.  

This month bankers were asked to assess the PPP. Fully 100% of bankers gauged the federal Paycheck Protection Plan as successful -- more than one of five bank CEOs support PPP expansion.

Said Lonnie Clark president of the State Bank of Chandler, Chandler, Minn., “Our farmers are taking the brunt of this and those with a negative Schedule F and no W-3 got no help from the PPP.”

According to recently released U.S. Court data calculated by the Farm Bureau, Chapter 12, U.S. family farm bankruptcies for the 12-month period ending March 2020 rose to 627 filings, a 23% increase from the previous 12 months. While this is well below the filings in the 1980s, it still raises concerns for rural communities across the U.S., Goss says.

Over the 12-month period ending in March 2020, a net increase of 41 of the bankruptcies were in the Rural Mainstreet region. Increases by state were: Iowa +23, Nebraska +22, South Dakota +7, and Minnesota +5.  Reductions by state were: North Dakota -10, Kansas -4, Colorado -1, and Wyoming -1.

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