Rural Economy Index Climbs But Bankers Ask For More Collateral

December 20, 2018 02:46 PM

The Rural Mainstreet Index, a survey of community bank CEOs, shows economic growth increasing. The 10-state survey by Creighton University focuses on rural areas dependent on agriculture and or/energy.

 The overall index rose to 54.2, where 50 equals growth neutral. This reflects growth over the November 49.9 reading.

“Our surveys over the last several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of tariffs and low agriculture commodity prices continue to weaken the farm sector,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.  

Banker confidence fell to 44.3, down from November’s 47.0, indicating pessimism among bankers. Hiring and employment is a healthy spot in the survey, at 57.1, though down slightly from November’s 66.7.

Here are a few highlights from December’s survey:

 “Farmers continue to feel the negative impact of tariffs and that impacts their ability to make a buck,” said Jeffrey Gerhart, CEO of the bank of Newman Grove in Nebraska in the report. “Farmers do not need this kind of disruption in their markets. This is bad policy from the White House.”

Borrowing by farmers advanced in December, moving the loan-value index up drastically to 72.2, up from 60.6 in November.  More than half of bankers are increasing collateral requirements for farm loans due to down income. However, one-quarter of bank CEOs say they’ve made no change in farm lending practices.

The land price index dropped to 35.7, just below November’s numbers. This marks the 60th straight month the index has fallen below growth neutral.

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Spell Check

Jordan, MN
12/20/2018 02:55 PM

  It's not surprising to me that banks are asking for more collateral to back loans. At least in our area, equipment prices at recent farm auctions have been very, very low. I'm sure bankers realize this and are getting nervous - especially with negative cash flows projected for 2019.

Jim Getten
Weiser, ID
12/21/2018 03:43 AM

  If you're old enough this stage of the AG economic situation will remind you of the 80's. That's when Willie Nelson created Farm Aid. 'Remember, history doesn't repeat but it does rhyme.' - Mark Twain

12/22/2018 08:11 AM

  Many farmers will not remember the 80s. Most farmers however will remember $15 beans and $5 corn of just a few years ago. Granted there is a natural cycle in nature and farming in general. With interest rates going up, the stock market collapsing and the farm economy hurting after several years of weak prices, somethings got to give. And weak balance sheets that received full bank financing of a year ago may not get funded in 2019. And my guess is that as we're now in a partial government shutdown, a new incoming congress will be seated in just 2 weeks and a plethora of international risks escalating (Syria, turkey, Russia, Chinese Tariffs...), ag bankers will assess ag loans even more critically than just a month ago.


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