High Interest Rates and Inflation Dragging Down the Rural Economy

For a fifth straight month, the rural economy has posted signs of trouble. That’s according to the Rural Mainstreet Index (RMI) from Creighton University.

 For September 2022, the RMI sits at 46.3. While it is up from August’s 44, it is still the fifth month below growth neutral.

The index ranges between 0 and 100 with a reading of 50 representing growth neutral and is generated by a monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

“The Rural Mainstreet economy is now experiencing a downturn in economic activity,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “Supply chain disruptions and inflationary pressures from higher farm input costs continue to constrain growth. Farmers and bankers are bracing for escalating interest rates, higher farm input costs and drought.” 

Four of 10 bankers indicated that high and escalating farm input costs were the greatest economic challenge to their bank and area over the next 12 months. More than two of 10 bank CEOs reported drought impacts were the greatest economic challenge going forward. 

James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa, reported that, “initial farm customer reviews show good crop production and cash flow analyses.”

All Eyes on Farmland

The region’s farmland price index for September climbed to 61.1 from August’s 60.0, marking the 24th straight month that the index has moved above growth neutral.  

“Increases in interest rates and farm inputs will adversely affect our farmers,” reports Jim Eckert, president of Anchor State Bank in Anchor, Ill.

According to Jim Rothermich of the Land Talker, five farmland sales auctions between Aug. 27 and Sept. 2 yielded sales of greater than $20,000 per acre in Iowa counties of Ida, Dubuque and Sioux. 

After falling below growth neutral in August, the farm equipment-sales index soared to 58 for September from 45.9 in August. The index has risen above growth neutral for 21 of the last 22 months. 

The September loan volume index climbed to a strong 79.5 from 73.9 in August. 

“Higher costs of farm inputs and drought conditions in portions of the region supported stronger borrowing from farmers,” Goss says.

Looking forward, the slowing economy, strong energy prices and high agriculture input prices constrained the business confidence index to 40.7 in September, which was up from 38 in August.

The RMI, which started in 2005, represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It focuses on 200 rural communities with an average population of 1,300.