Monday, February 25, 2019

Creighton U's Rural Mainstreet Index Falls for February: Almost Two-Thirds of Banks Raised Farm Loan Collateral Requirements

From Creighton's Heider College of Business, Feb. 21:
February Survey Results at a Glance:
  • Overall index remains above growth neutral for the 11th time in past 12 months.   
  • Bank CEOs project a 6.1 percent decline in farm equipment sales over the next year compared to a 6.9 percent reduction last February.
  • Weak farm income has pushed almost two-thirds of banks to increase collateral requirements on farm loans.
  • Almost one-third of banks have increased the farm loan rejection rate due to anemic farm income.
OMAHA, Neb. (Feb. 21, 2019) - The Creighton University Rural Mainstreet Index for February fell, but remained above growth neutral, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy

Overall: The overall index sank to 50.2 from January's 51.5. This was the 11th time in the past 12 months the index has remained 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, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University, Heider College of Business.   

Don Reynolds, chairman of Regional Missouri Bank in Columbia, Missouri, reported that, "2018 was not a great year for farmers in our area, but for the most part they have done better than we anticipated. Cash flow projections for 2019 look very tight." 

Farming and ranching: The farmland and ranchland-price index for January increased to 42.2 from 37.9 in January. This is the 63rd straight month the index has fallen below growth neutral 50.0. 
The January farm equipment-sales index slumped to 32.8 from January's 40.9. This marks the 66th consecutive month that the reading has remained below growth neutral 50.0.
Bankers were asked to estimate the change in agriculture equipment sales in their area for the next year. On average, bankers expect another 6.1 percent decline in farm equipment sales over the next year. This is an improvement from last year at this time when a 6.9 percent decline was expected.

Banking: Borrowing by farmers for February was strong as the borrowing index soared to 71.3 from January's 55.8. The checking-deposit index plummeted to 40.9 from January's 67.6, while the index for certificates of deposit and other savings instruments slipped to 47.0 from 47.1 in January.    
James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa, reported, "(Weak farm income has produced) more restructuring with ag loans to shore up working capital and reduce term payments if possible while commodity prices remain low." 

This month bankers were asked to identify their bank's response to weak farm income. Almost two-thirds, or 62.6 percent, indicated collateral requirements have been raised on farm loans. This compares to 45.2 percent for February 2018. 

Almost one-third, or 30.3 percent of bankers, reported that a higher percentage of farm loan applications had been rejected. This compares to 21.4 percent of banks in February 2018 that reported they had rejected a higher percentage of farm loans. 

Hiring: The employment gauge climbed to a healthy; 60.6 from January's 55.7. 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 1.1 percent pace compared to a higher 1.6 percent for urban areas of the same 10 states.   
Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, climbed to a still anemic 48.5 from January's 45.7, indicating a pessimistic economic outlook among bankers. 

"Tariffs, trade tensions, weak agriculture commodity prices and anemic farm income negatively influenced the economic outlook of bank CEOs," said Goss. 

Home and retail sales: The home-sales index increased to 50.0 from 45.7 in January. Retail sales sank to 48.5 from January's 52.9....MUCH MORE