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Rural Index Rises: Farm Foreclosures Pose Greatest Threat
USAgNet - 10/23/2017

The Creighton University Rural Mainstreet Index rose from September's reading, but remained below growth neutral, according to the latest 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, increased to 45.3 from 39.6 in September.

"As a result of weak farm income and low agriculture commodity prices, approximately 9.5 percent of bank CEOs expect farm loan foreclosures to pose the greatest threat to banking operations over the next five years," said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Farming and ranching: The farmland and ranchland-price index for October slipped to 39.3 from 39.6 in September. This is the 47th straight month the index has fallen below growth neutral 50.0.

Bankers were asked to compare current spot prices for a bushel of corn to break even. Only 2.4 percent of bankers indicated that prices between $3.50 and $3.75 were above break even. Approximately 45.2 percent reported current spot prices were below break even.

According to Jeffrey Gerhart, president and chairman of the Bank of Newman Grove in Newman Grove, Nebraska, "Break-even prices vary from farmer to farmer. (It) depends upon the debt carried by the farmer. It's all about their cash flow."

However, Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Illinois, said, "Where can I find a spot price for corn of $3.50 or above today? Try $3.00 to $3.20, which is below the break even by all means."

The October farm equipment-sales index increased to 29.3 from September's 27.4. This marks the 50th consecutive month the reading has dropped below growth neutral 50.0.

Banking: Borrowing by farmers was strong for October as the loan-volume index fell to a still strong 67.9 from 73.2 in September. The checking-deposit index was 54.8, up from September's 51.2, while the index for certificates of deposit and other savings instruments sank to 44.1 from 46.6 in September.

"Rural Mainstreet bankers have been generally supportive of Federal Reserve rate hikes. Approximately, 64.3 percent anticipate one more 2017 rate increase," said Goss.

Hiring: The employment gauge climbed to 57.3 from September's 55.9. Rural Mainstreet businesses not linked to agriculture increased hiring for the month, and at a faster pace than in September.

Confidence: The confidence index, which reflects expectations for the economy six months out, increased to a weak 37.0 from 36.1 in September, indicating a continued pessimistic outlook among bankers. "Concerns about trade, especially current NAFTA negotiations, and low agriculture commodity prices impaired bankers' economic outlook for the month," said Goss.

Home and retail sales: The home-sales index moved lower for the Rural Mainstreet economy for October, falling to 52.5 from September's 56.0. The October retail-sales index slumped to 39.3 from 41.9 in September. "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.


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