Farm lending is strong, but confidence droops, survey says

Each month, community bank presidents and CEOS in rural areas and agriculturally and energy dependent sects of the nation are surveyed about their current economic conditions and economic outlook. The survey outcomes, quantified by the Rural Mainstreet Index, serve as a snapshot of the economic state of the rural midwest, from the eyes of bank leaders.

The October RMI climbed above 50, indicating expansion, to 51.4, which is the highest it’s been since June. 

Lending to farmers, specifically, remained strong. The borrowing idex dropped to a still-strong 68.9 from 72.2 in September. The checking deposit index jumped to 60.8 from 54.2 in September.

The farmland and ranchland-price index, however, slumped to a weak 40.3 from September’s 43.1, which is the lowest reading since early spring. This index hasn’t risen above 50 in almost six years.

“Hopefully the true corn acres planted, and more importantly, overall yields will be made public here soon now that we are well into harvesting this year’s crop,” said Jeff Bonnett, president of Havana National Bank, Havana, Ill. “I am not sure why this is such a secret and why we do not get more accurate information based upon certification of acres planted back in July.”

As for the state of employment in October, the gauge remains a healthy 59.7, dropping from 62.5 over the past month. Despite tariffs and flooding over the past several months, businesses continue to hire at a steady pace. 

In the past year, the overall rural mainstreet economy added jobs at a 0.8 percent rate, which is well-below the pace of urban area growth, which was 1.2 percent for the same period.

In fact, Illinois banks have experienced job growth in rural areas by 1.3 percent over the past year, compared to a slightly weaker 1 percent in urban areas. In Minnesota, rural job growth was 1.6 percent in the past year, and the new-hiring index is now 60.1 compared to 53.2 in September. The new-hiring index in Illinois, Iowa, Kansas, and North Dakota also remains above growth neutral for October. 

“Federal agriculture crop support payments and somewhat higher grain prices have boosted the Rural Mainstreet Index slightly above growth neutral for the month. Even so, almost three of four bank CEOs, or 73 percent, report continuing negative impacts from the trade war,” said Earnie Goss, PhD., Jack A. MacAllister chair in regional economics at Creighton University’s business school.

The confidence index, which reflects bank CEO expectations for the economy in the next six months, dropped to 36.5 from September’s 42.9, and continues to indicate negative outlooks among bankers, according to the report. 

“This is the lowest economic confidence we have recorded in two years,” said Goss. “The trade war with China and the lack of passage of the USMCA (NAFTA’s replacement) are driving confidence and growth lower for most areas of the region.”

The home-sales index decreased to 54.2 from 57.1 in the past month, and the retail sales index for October fell to 47.2 from 52.8.

“What is happening in the economy today is exactly what voters voted for,” said Jim Stanosheck, CEO of State Bank, Odell, Neb.

The RMI includes data provided by 200 rural communities with an average population of 1,300 in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.