Rural Banker’s Outlook for Ag Economy Cools Slightly
After six straight months of below growth neutral readings, the Creighton University Rural Mainstreet Index (RMI) climbed above the growth neutral threshold of 50.0, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: The region's overall reading in December rose about the growth neutral threshold. The index increased to a tepid 50.1 from 45.7 in November. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.
“The rural mainstreet economy continues to experience slow, to no, to slightly negative economic growth. On average, bankers expect 2022 net farm income in the region to expand by 10,0% in comparison to USDA's projected growth of 13.8% for the nation's farmers," says Creighton University’s Ernie Goss who conducts the monthly survey.
David Steffensmeier, Chairman of First Community Bank in Beemer, Neb., reports, “Our area was negatively affected by the dry weather, and crop yields were lower so income will follow the yields.”
Farming and ranching: The region's farmland price index declined to 65.4 from November's 66.2. This is the 27th straight month that the index has climbed above 50.0.
On average, almost one-fourth, or 24.7%, of bankers expect high farmland prices to discourage investments in farm operations in 2023.
Jeff Bonnett, CEO of Havana State Bank in Havana, Ill., says, “Significant increases to all other input costs projected for 2023 will force farm operators to pay extra attention to the business side of producing a crop.”
Farm equipment sales: The farm equipment-sales index climbed to 60.4 from 59.5 in November. The index has risen above growth neutral for 23 of the last 25 months.
This month, bankers were asked if higher interest rates are negatively affecting farmer purchases of ag equipment. More than one in three bankers, or 34.5, report rates were not impacting sales, while approximately 19.2% say higher interest rates were restricting the purchase of farm equipment.
James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa, notes that due to large increases in farmer working capital, there have been a lot of cash purchases of machinery and not much borrowing.
Banking: The December loan volume index rose to a very strong 72.1 from 65.8 in November. The checking-deposit index increased to 48.1 from November’s 47.7, while the index for certificates of deposit and other savings instruments expanded to 51.9 from 45.5 in November.
“Higher farm input costs, greater farm equipment sales and drought conditions in portions of the region supported strong borrowing from farmers. At the same time, higher interest rates encouraged greater CD purchases by farmers,” says Goss.
Confidence: The slowing economy, strong energy prices, higher borrowing costs and elevated agriculture input costs continue to constrain the business confidence index to a very weak 29.6, up from 27.3 in November. “Over the past nine months, the regional confidence index has fallen to levels indicating a very negative outlook,” states Goss.
The Rural Mainstreet Index covers 10 regional Midwestern states, focusing on approximately 200 rural communities with an average population of 1,300.
