While it may be hard to believe, the ag economy is showing signs of improvement. For the second straight month, the Rural Mainstreet Index (RMI) reveals a steadying of farmers’ financial conditions. The monthly survey of bank CEOs in a 10-state Midwest region measured a solid 54.7 in March, down only slightly from February. The index ranges between 0 and 100, with 50 being growth neutral.
This is the first time since the middle of 2015 that RMI has shown two straight months of overall indices above growth neutral.
“Surveys over the past several months indicate that the Rural Mainstreet economy is trending upward with improving, but slow economic growth,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “However, weak agriculture commodity prices continue to weigh on the rural economy.”
The farmland and ranchland-price index for March dropped to 42.7 from February’s 46.3. This is the 52nd straight month the index has fallen below 50. Yet this month’s farmland index is well above the March 2017 index of 33.
Not surprisingly, the percent of non-financed farmland purchases has declined over the past year, according to bankers.
What percent of recent farmland purchases in your area do you estimate are cash sales (not financed)?
- Less than 10%: 27.3%
- 10% to 19%: 25%
- 20% to 32%: 34.1%
- 33% to 50%: 11.4%
- 51% to 75%: 2.2%
For 2018, responding bankers expect 16.8% of grain farmers in the region will experience negative cash flow for 2018. This is similar to 12 months ago.
“Many borrowers in the ag sector continue to erode working cash with negative cash flow projections,” says Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill.
What percentage of grain farmers in your area is projecting negative cash flow for 2018?
- 1% to 4% of grain farmers: 15.9%
- 5% to 14% of grain farmers: 27.2%
- 15% to 24% of grain farmers: 27.3%
- 25% to 29% of grain farmers: 20.5%
- Over 29% of grain farmers: 9.1%
The confidence index, which measures expectations for the economy six months out, is at 58. That’s up from February’s 52.4, indicating rising economic optimism among bankers. This is the highest confidence reading since June 2013.
“However, an unresolved North America Free Trade Agreement and relatively weak agriculture commodity prices continue to be a concern,” Goss says.