Creighton University's "Rural Mainstreet Index Climbs for July: Bankers Expect Farm Loan Defaults to Rise 5%"

From Creighton's Heider College of Business:

July Survey Results at a Glance:

• Overall index advanced to a weak level and remained below pre-COVID-19 levels.
• Compared to June economic conditions in their area, approximately 6% of bank CEOs reported improvements, while 18% detailed deterioration.
• This month, bankers estimated that farm loan defaults would rise by 5% over the next 12 months. This is up slightly from 4.8% registered one year ago.
• Approximately 38% of bankers reported a decline in customer visits due to the coronavirus.
• Almost one-third of bank CEOs indicated that the coronavirus had reduced the number of farm loan applications.
• Employment for Rural Mainstreet economy was down by 372,000, or 8.5% compared to pre-COVID-19 levels.

OMAHA, Neb. (July 16, 2020) - The Creighton University Rural Mainstreet Index (RMI) increased to a weak level from June’s frail reading. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, July’s reading represented the fourth straight month with a reading indicating recessionary economic conditions. 

Overall: TThe overall index for July climbed to 44.1, well below growth neutral, but up from June’s 37.9 and April’s record low 12.1. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral. 

“Farm commodity prices are down by 12.5% over the last 12 months. As a result, and despite the initiation of $16 billion in USDA farm support payments, only 6% of bankers reported their area economy had improved compared to June while 17.6% said economic conditions had worsened,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business. 

This month bank CEOs were asked the current operation status of ethanol plants in their area. Almost one-third of bankers with local ethanol plants reported current production shutdowns, either permanent or temporary. 

Farming and ranching: : Farmland prices continue to slide, with a July reading of 45.6, down from June’s 46.8. This is the 79th time in the past 80 months the index has been below growth neutral.

Falling agriculture commodity prices and farm income have failed to diminish annual farm rents per acre. This month bank CEOs reported average per acre farmland rents of $220 which is almost unchanged from that detailed earlier this year, and four years ago.

The July farm equipment-sales index increased to a weak 34.4 from 32.8 in June. This marks the 82nd straight month the reading has remained below growth neutral 50.0.

Banking: Borrowing by farmers expanded for July, but at a slower rate than in June. The borrowing index fell to 57.4 from June’s 63.6. The checking-deposit index declined to 64.7 from June’s 77.3, while the index for certificates of deposit and other savings instruments increased to 52.9 from 51.5 in June. 

This month, bankers estimated that farm loan defaults would rise by 5% over the next 12- month period. This is up slightly from 4.8% registered one year ago....

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