For the first time since July 2023, the overall Rural Mainstreet Index (RMI) rose above growth neutral, according to the November survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
The region’s overall reading for November climbed to a soft 50.2 from October’s very weak 35.2. It was the highest reading since July of last year. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.
“Yields have been healthy across the region and have offset some of the weakness in farm commodity prices. Likewise, lower fuel costs and lower short-term interest boosted the modest improvement in farm conditions for the month. Even so, more than eight of 10 bankers see lower ag commodity prices as the greatest threat to the farmer,” says Dr. Ernie Goss, Creighton University, who conducts the survey.
James Brown, CEO of Hardin County Bank in Eldora, Iowa, states, “Good yields are so far offsetting lower commodity prices. Most ag borrowers are just breaking even unless they did some good marketing earlier.”
Other comments from bankers for November:
· Terry Engelken, Vice President of Washington State Bank in Washington, Iowa, reports “Corn and soybean yields were excellent in our area.”
· Jim Eckert, CEO of Anchor State Bank in Anchor, Illinois, says, “Harvest is complete in our area, except for the usual stragglers. Yields were the same or better than 2023, but depressed commodity prices will generate some carryover debt for some operators.”
· Larry Winum, CEO of Glenwood State Bank, notes, “Now that the republicans have control of the White House and Congress, let’s see if they can get serious about a tiered regulatory program for the banking system and a serious discussion and plan to balance the federal budget and reduce the federal debt. It’s time to quit talking about it and actually put a plan in place.”
· Casey Regan, CEO of Premier Bank Minnesota, reports “The regulation relief anticipated under the new Trump Administration contributes to a renewed optimism in the economic environment, particularly in the area of banking. Had the opposite election result occurred, the negative impacts on the financial services industry via legislation through regulation would have been disastrous to the economy.”
Farming and ranch land prices: For the sixth time in the past seven months, farmland prices sank. However, the region’s farmland index improved to a weak 44.4 from October’s six-year low of 38.5. “Elevated interest rates and higher input costs, along with below break-even grain prices, have significantly reduced farmer demand for ag land,” states Goss.
On average, bank CEOs expect farmland prices to decline by 2.7% over the next 12 months, the survey says.
Jeff Bonnett, CEO of Havana National Bank in Havana, Illinois comments, “The pending FARM Act (H.R. 10045 - Farmer Assistance & Revenue Mitigation Act), if approved by Congress, would provide a huge boost to the ag and rural economy in our market area. With per acre estimates of about $100 for corn and almost $50 for soybeans, this targeted relief to farmers that suffered due to extremely low commodity prices (below the cost of production) for their 2024 harvest would at least recover part of their operating losses. Our bank is optimistic that this much needed legislation will pass.”
Farm equipment sales: The farm equipment sales index slumped to 14.6, its lowest level since October 2016, and was down from 18.8 last month. “This is the 16th straight month the index has fallen below growth neutral. High borrowing costs, tighter credit conditions and weak farm commodity prices are having a negative impact on the purchases of farm equipment,” notes Goss.
Confidence: Rural bankers remain pessimistic about economic growth for their area over the next six months. The November confidence index increased to a weak 46.4, its highest level since March 2022, and is up from October’s 29.6. “Weak agriculture commodity prices and negative farm cash flow, combined with downturns in farm equipment sales over the past several months, continue to place banker confidence below growth neutral,” observes Goss.
The Rural Mainstreet Index, a real-time analysis of the rural economy, covers 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300.