For a ninth straight month, the overall Rural Mainstreet Index (RMI) sank below growth neutral, according to the May 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 May fell to 44.2 from 45.8 in April. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.
“Higher interest rates, weaker agriculture commodity prices and higher grain storage costs pushed the overall reading below growth neutral for the ninth straight month,” says Creighton University’s Dr. Ernie Goss, who conducts the survey.
Farming and ranching land prices: After rising above the growth neutral threshold for 53 straight months, the region’s farmland prices slumped to 47.9 from April’s 56.5. “For the first time in more than four years, Creighton’s survey is detecting weakening farmland price growth. Only 4.2% of bankers reported that farmland prices expanded from previous levels,” states Goss.
Bankers registered average yearly cash rents for non-irrigated crop land in the region of $245 per acre.
Farm equipment sales: The farm equipment sales index for May dropped to 34.0 from 47.7 in April. “This is the 11th time in the past 12 months the index has fallen below growth neutral. Higher borrowing costs, tighter credit conditions and weaker grain prices are having a negative impact on the purchases of farm equipment,” comments Goss.
This month bankers were asked about their banks’ average interest rates on farm operating loans and farmland loans. On average, bankers reported an average interest rate of 8.6% on farm operating loans and 7.4% on farmland loans.
Confidence: Rural bankers remain very pessimistic about economic growth in their area over the next six months. The May confidence index slumped to 28.8, the lowest since November of last year, and down from April’s 37.5. “Weak agriculture commodity prices and farm exports combined with downturns in farm equipment sales over the past several months continued to constrain banker confidence,” says 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.