Half of Rural Supply Managers Reporting Negative Impact of Flooding

The Creighton University Rural Mainstreet Index for March rose to its highest level since December of last year according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. However, a large share of survey responses occurred before most of the negative impacts of the recent floods become widely known.

The overall index expanded to 52.9 from 50.2 in February, the highest reading since December of last year and the eleventh time in the past 12 months that the index has moved above growth neutral. The index ranges between 0 and 100 with 50.0 representing growth neutral.

“Our surveys over the last several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of tariffs and low agriculture commodity prices continue to weaken the farm sector,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton’s Heider College of Business.

Farming and ranching: The farmland and ranchland-price index for March slumped to 36.4 from February’s 42.2. This is the 64th straight month the index has fallen below growth neutral 50.0.

The February farm equipment-sales index was unchanged from February’s 32.8, making this the 67th straight month the reading has fallen below growth neutral.

Bankers were asked to estimate the percentage of grain farmers in their area that were projecting negative cash for 2019. On average, bankers expect approximately 18 percent of grain farmers to experience expenses to exceed revenue for 2019. This is approximately one percent higher than last March’s results when the same question was asked.

However, Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., reported, “2019 will again be a critical point in the progression of deterioration of balance sheets from this depressed farm economy. Working capital buffers have been greatly reduced by negative cash flows the last four years with cash flows again stressed to negative for the current crop year.”

Kuhlmeier also indicated that strong yields and last year’s market facilitation payments on soybeans have slowed the financial decline.

Regarding property taxes on farmers, 25.7 percent of bankers reported that these taxes were a “major problem or issue” for farmers. Another 40.0 percent indicated that property taxes were an “important issue” for farmers.

In terms of financial stress for farmers, 82.9 percent of bankers reported that the number one reaction to financial stress was restructuring loans. Another 14.3 percent indicated that farmers were slow paying their loans, and 2.9 percent reported financially stressed farmers selling the farm to more economically viable farm operators.

Banking: Borrowing by farmers for March was strong as the borrowing index climbed to 76.7 from February’s 71.3. The checking-deposit index increased to a weak 42.4 from February’s 40.9, while the index for certificates of deposit and other savings instruments rose to 47.1 from 47.0 in February.

Hiring: The employment gauge climbed to a healthy 65.7 from February’s 60.6. Despite weak farm commodity prices and farm income, Rural Mainstreet businesses continue to hire at an improved rate. Over the past 12 months, the Rural Mainstreet economy added jobs at a 0.3 percent pace compared to a higher 1.3 percent for urban areas of the same 10 states.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, fell to an anemic 45.7 from last month’s 48.5, indicating a pessimistic economic outlook among bankers.

“March floods, tariffs, trade tensions and anemic farm income negatively influenced the economic outlook of bank CEOs,” said Goss.

Home and retail sales: The home-sales index increased to 52.9 from 50.0 in February. The retail/sales index for March was 48.5, unchanged from the previous month.

This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation, including Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. The 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 curren, 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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