For a 10th straight month, the overall Rural Mainstreet Index (RMI) sank below growth neutral, according to the June survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: The region’s overall reading for June sank to 41.7 from 44.2 in May. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.
“Higher interest rates, weak agriculture commodity prices and sinking agriculture equipment sales pushed the overall reading below growth neutral for the 10th straight month,” states Dr. Ernie Goss, Creighton University, who conducts the survey.
According to James Brown, president of Hardin County Savings Bank in Eldora, Iowa, “Farm operating loans are up 20% in total volume compared to last year, a sign that cash flow and cash (balances) are down from last year.”
Farming and ranching land prices: After rising above the growth neutral threshold for 53 straight months, the index slumped below growth neutral for a second consecutive month to 49.9, but it was up from May’s 47.9. “Only 4.3% of bank CEOs reported that farmland prices expanded from May levels,” says Goss.
According to trade data from the International Trade Association, regional exports of agriculture goods and livestock for 2024 year-to-date were down 4.1% from the same period in 2023.
Farm equipment sales: The farm equipment sales index for June dropped to 31.8 from 34.0 in May. “This is the 12th time in the past 13 months that the index has fallen below growth neutral. Higher borrowing costs, tighter credit conditions and weak grain prices are having a negative impact on the purchases of farm equipment,” comments Goss.
Banking: The June loan volume index stood at a very strong 79.2 but was down from 82.0 in May and from April’s record high 85.4. The checking deposit index sank to 34.8 from May’s 44.0. The index for certificates of deposits and other savings instruments rose to 63.0 from 62.0 in May.
“Delinquency rates for farm and business loans on Rural Mainstreet have remained virtually unchanged over the past six months according to bank CEOs,” says Goss. Furthermore, only 8.7% of bankers have increased their farm loan rejection rates, while approximately 13.0% and 4.3%, respectively, reported restructuring or reducing the loan-to-value ratios.
Confidence: Rural bankers remain very pessimistic about economic growth for their area over the next six months. The June confidence index increased to a very weak 29.2 from May’s 28.8. “Weak agriculture commodity prices and farm exports, combined with downturns in farm equipment sales over the past several months, continued to constrain banker confidence,” notes Goss.
The survey represents an early snapshot of the economy of rural agriculturally- and energy-dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300.