Pessimism Grows Over Rural Economy

For a fifth consecutive month, the overall Rural Mainstreet Index (RMI) sank below growth neutral, according to the January survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

The region’s overall reading for January rose to 48.1 from 41.7 in December. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral. 

“Higher interest rates, weaker agriculture commodity prices and a credit squeeze are having a significant and negative impact on rural mainstreet businesses and on farmers. Jim Eckert, CEO of Anchor State Bank in Anchor, Ill. Indicates that unless crop prices improve, 2024 will not be a good year for area farmers,” says Creighton University’s Dr. Ernie Goss.

Farming and ranching land prices: The region’s farmland price index fell to a still strong 64.0 from December’s 67.2. The farmland price index has remained above growth neutral for every month since November 2019. “Creighton’s survey continues to point to solid, but slowing, growth in farmland prices. Approximately, 28.0% of bankers report farmland prices expanded from December levels,” states Goss.

Farm equipment sales: The farm equipment-sales index for January sank to 47.9 from December’s weak 49.5. "This is the seventh time in the past eight months the index has fallen below growth neutral. Higher borrowing costs, tighter credit condition and weaker grain prices are having a negative impact on the purchases of farm equipment," notes Goss. 

Jim Eckert, CEO of Anchor State Bank in Anchor, Ill., says, “Input prices for 2024 are somewhat reduced from 2023, but cash rents are level.”

"For a fourth consecutive month, several bankers voiced concerns over economic losses by pork producers in their area,” comments Goss.

When asked about the share of farm clients facing generational transition, on average, bankers estimate that approximately 25% will face transition issues in the next decade. Furthermore, 19.2% expected transitioning farm clients to pose an economic opportunity for their banking operations with 65.4% expecting both opportunities and threats from this transitioning. 

Of those transitioning, bank CEOs expect 53.8% to transfer ownership to heirs and 42.3% anticipate the sale to other farmers in the area. Bankers expect virtually no sales to farmers outside the area, including foreign buyers.

Confidence: Rural bankers remain very pessimistic about economic growth for their area over the next six months. The January confidence index sank to 38.5 from December’s 43.3. Falling agriculture commodity prices and higher interest rates over the past several months continue to constrain business confidence.

The survey represents an early snapshot of the economy of rural agriculturally- and energy-dependent portions of the nation. The Rural Mainstreet Index coves 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300.