Rural Economy Index Climbs But Bankers Ask For More Collateral
RMI December 122118
The Rural Mainstreet Index, a survey of community bank CEOs, shows economic growth increasing. The 10-state survey by Creighton University focuses on rural areas dependent on agriculture and or/energy.
The overall index rose to 54.2, where 50 equals growth neutral. This reflects growth over the November 49.9 reading.
“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, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
Banker confidence fell to 44.3, down from November’s 47.0, indicating pessimism among bankers. Hiring and employment is a healthy spot in the survey, at 57.1, though down slightly from November’s 66.7.
Here are a few highlights from December’s survey:
- Overall index moves above growth neutral for the 10th time in past 12 months.
- Bankers project negative cash flow (losses) for more than one in six grain farmers.
- More than half of bankers have boosted collateral requirements for farm loans due to low agriculture income.
- One-fourth of bank CEOs have made no change in farm lending practices due to weak farm income.
- Approximately one in 10 bank CEOs project 2019 farm loan defaults to rise by over 10 percent over 2018 levels.
“Farmers continue to feel the negative impact of tariffs and that impacts their ability to make a buck,” said Jeffrey Gerhart, CEO of the bank of Newman Grove in Nebraska in the report. “Farmers do not need this kind of disruption in their markets. This is bad policy from the White House.”
Borrowing by farmers advanced in December, moving the loan-value index up drastically to 72.2, up from 60.6 in November. More than half of bankers are increasing collateral requirements for farm loans due to down income. However, one-quarter of bank CEOs say they’ve made no change in farm lending practices.
The land price index dropped to 35.7, just below November’s numbers. This marks the 60th straight month the index has fallen below growth neutral.
