For the first time since November, the Rural Mainstreet Index (RMI) fell below growth neutral. The monthly survey of bank CEOs in a 10-state Midwest region is at 48.5 for May 2019, which is at growth neutral and down from 50.0 in April. This is the first month of negative growth, after five months of growth. The index ranges between 0 and 100 with 50.0 representing growth neutral.
“The trade tensions and tariffs are hammering the farming economy,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “Grain farmers throughout the region continue to experience losses produced by trade issues and plentiful global supplies. On the other hand, the expanding U.S. domestic economy is supporting livestock producers in the region. For May, according to bankers, the negatives far outweighed the positives.”
On average, bankers expect farm loan defaults to climb by 10.9%. This is more than double the estimated rate of growth just two years ago.
In reaction to higher default rates, nearly 62% of bankers increased collateral requirements. Additionally, one in four bankers report rejecting a higher percentage of farm loans due to declining farm income.
The farmland and ranchland-price index for May sank to 41.2 from April’s 45.2. This is the 66th straight month the index has remained below growth neutral.
The confidence index, which reflects bank CEO expectations for the economy six months out, plummeted to 38.2 from April’s 50.0, indicating a very pessimistic economic outlook among bankers. This is the lowest level in almost two years for the economic confidence index.
“March floods, recently announced tariffs, and anemic farm income negatively influenced the economic outlook of bank CEOs,” Goss says.
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