After declining below growth neutral for March, the overall Rural Mainstreet Index for June expanded above the threshold for a third straight month to its highest level since May 2022, according to the June monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: The region’s overall reading in June climbed to 56.9, the highest reading since May 2022 and up from last month’s 55.8. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.
“After negative growth during the first quarter of this year, the rural mainstreet economy experienced positive, but slow, economic growth for all of the second quarter. Only 3.4% of bankers reported a downturn in economic conditions for the month,” says Creighton University’s Dr. Ernie Goss, who conducts the monthly survey.
Farming and ranching land prices: The region’s farmland price index rose to 59.3 in June from 56.3 in May. This was the 33rd straight month that the index has advanced above 50.0.
Farm equipment sales: The farm equipment-sales index fell to a weak 48.3 from 50.2 in May. Farm equipment sales declined for only the third time in the past 31 months. “Higher borrowing costs have begun to negatively impact purchases of farm equipment,” observes Goss.
More than half of bankers report higher interest rates were impairing farm equipment purchases.
On the other hand, Mike Van Erdewyk, CEO of Breda Savings Bank in Breda, Iowa, says, “Higher interest rates are not having a significant impact on farm operations yet as many farmers have paid down operating lines with grain sales.”
Banking: Bank CEOs ranked Federal Reserve rate hikes as their greatest challenge in the 12 months ahead with rising bank regulations ranked as a distant second.
“Bankers continue to have a very positive outlook for the payment of farm loans with an estimated loan default rate rising less than 1% over the next 12 months,” notes Goss.
“Higher short-term interest rates produced by Federal Reserve rate hikes over the past year have posed a significant threat to community banks by expanding the costs of customer deposits while the rates on bank loans have risen little over the same time period,” notes Goss.
The region exported $13.3 billion of agriculture and livestock in 2022. This represented 26.5% growth from the previous year. Mexico was the chief destination, accounting for 55.2% of the region’s farm and ranching exports.
Confidence: Higher interest rates, deposit outflows and a rising regulatory environment continue to constrain the business confidence index to a weak 43.1, but up from 38.5 in May. “Over the past 12 months, the regional confidence index has fallen to levels indicating a negative outlook,” says Goss.
The Rural Mainstreet Index covers 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. The index provides the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former Chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.