Is Trouble Brewing for the Farm Economy?
For the first time since September 2020, the rural economy is showing signs of weakness. That’s according to the March Rural Mainstreet Index (RMI) from Creighton University.
For June 2022, the RMI sits at 49.8. That is down from May’s 57.7. The index ranges between 0 and 100 with a reading of 50 representing growth neutral and is generated by a monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
“Much like the nation, the growth in the Rural Mainstreet economy is slowing,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. “Supply chain disruptions from transportation bottlenecks and labor shortages continue to constrain growth. Farmers and bankers are bracing for escalating interest rates — both long-term and short-term.”
Bankers were asked their U.S. recession expectations for the next 12 months. Approximately 92.9% rate the likelihood of a U.S. recession above 50%. Only 7% rated a recession probability below 50%.
“Fuel prices are starting to have a severe negative impact on rural Nebraska,” shared Jon Schmaderer, CEO of Tri-County Bank in Stuart, Neb.
Farmland Prices Stay Strong
The region’s farmland price index for June hit 76.8, up from May’s 72. That marks the 21st straight month the index has moved above growth neutral. Over the past several months, the RMI has registered the most consistent and strongest growth in farmland prices since the survey was launched in 2006.
So far in June, Peoples Company appraisal team tracked 32 cropland auctions across 17 Iowa counties. In total, 4,305 acres of cropland sold in auctions for $57.8 million, or an average of $13,426 per acre.
In late May, a farm in Plymouth County, Iowa, sold for $25,000 per acre – a new record.
On average in June, bank CEOs expect 2022 net farm income for grain farmers to be 12.6% above 2021 levels.
The June farm equipment-sales index climbed to 71.4 from May’s healthy 66.9. This was the 19th straight month that the index has advanced above growth neutral. Readings over the past several months are the strongest string of monthly readings recorded since the beginning of the survey in 2006.
Meanwhile, the loan volume at rural banks is increasing. The June loan volume index rose to 78.5, its highest reading since May 2019, from last month’s 73.0.
“Escalating costs of farm inputs pushed borrowing up to its highest reading since May 2019,” Goss says.
Surging energy prices and rocketing agriculture input prices constrained the business confidence index to 33.9, its lowest level since May 2020. This marks the lowest back-to-back readings since the beginning of the pandemic in April and May 2020.
The RMI, which started in 2005, represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It focuses on 200 rural communities with an average population of 1,300.
