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Ag Bankers Turn Even More Pessimistic

17:18PM Oct 15, 2015

Midwestern rural bankers became even more bearish on farmland values in October, a recent survey shows. The monthly Rural Mainstreet Index (RMI) survey conducted by Dr. Ernie Goss, Creighton University, saw the Index's farmland and ranchland price index fall to 31.0 in October, down from 35.5 in September. (Note: An index number of 50 is considered growth neutral.) "This is the 23rd straight month the index has moved below growth neutral. But, as in previous months, there is a great deal of variation across the region in the direction and magnitude of farmland prices," says Goss.

This month bankers reported on the level of cash rents for farmland. On average, yearly cash rents across the region were $229 per acre. "This is well below rents recorded six months ago and this is the first time that we measured any real downturn in cash rents," states Goss. According to David Steffensmeier, president of the First National Bank in Beemer, Nebraska, "Since corn and soybean prices are down a minimum of 25%, overall cash rent needs to adjust down as well. It will be interesting to watch if that is possible this fall and winter."

The October farm equipment-sales index slumped to a record low 10.8 from September's anemic 14.2. "The 2014 and 2015 downturns in farm income continue to reduce sales and production of agriculture equipment dealers and producers across the region. Bankers remain pessimistic about the short and intermediate prospects for agriculture equipment dealers and producers on rural mainstreet," says Goss.

The RMI for October fell from September's weak reading, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. The RMI, which ranges between 0 and 100, sank to 44.4 from September's 49.0 and well below August's growth neutral 50.0. In fact, not one of the 10 states surveyed had an RMI above 50.0. "This is the third straight month that the overall index has declined, reflecting weakness stemming from lower agriculture and energy commodity prices and from downturns in manufacturing exports," states Goss. Regional manufacturers are experiencing weaker conditions. For example, James Shafer, CEO of The First National Bank in Tremont, Illinois, reported, "Caterpillar's announced layoffs of 5,000 employees is having a negative impact on the entire central Illinois."

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