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Farm Loans Soared to Record Level

April 2024 Survey Results at a Glance:

For an eighth straight month, the overall Rural Mainstreet Index (RMI) sank below growth neutral, according to the April survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The region’s overall reading for April increased to 45.8 from 38.0 in March, or its lowest level since June 2020. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.

“Higher interest rates, weaker agriculture commodity prices and higher grain storage costs pushed the overall reading below growth neutral for the eighth straight month,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Farm equipment sales: The farm equipment sales index for April improved to a weak 47.7 from March’s 30.4, which was the lowest reading since May 2020. “This is the 10^th time in the past 11 months that the index has fallen below growth neutral. Higher borrowing costs, tighter credit conditions and weaker grain prices are having a negative impact on the purchases of farm equipment,” said Goss.

Farming and ranching land prices: The region’s farmland price index rose to a solid 56.5 from March’s 56.0. The farmland price index has remained above growth neutral for 53 consecutive months. “Creighton’s survey continues to point to solid, but slowing, growth in farmland prices for 2024. Approximately 17.4% of bankers reported that farmland prices expanded from March levels,” said Goss.

“Even with weaker farm conditions, only approximately 0.9% of bankers reported an upturn in farm loan delinquencies over the past six months. This is slightly below last month’s 1.0% when the same question was asked,” said Goss.

Approximately half of bank CEOs reported that ethanol production was very important to their local economy.

Terry Engelken, past president of Washington State Bank in Washington, Iowa, reported that, “We have a biodiesel plant and that does not need a pipeline (to transport CO2). There is a new technology that converts the CO2 to methanol and thus would end the need for the pipelines.”

Banking: The April loan volume index soared to a strong and record high 85.4 from 79.2 in March. The checking deposit index sank to 52.2 from March’s 62.5. The index for certificates of deposits and other savings instruments slipped to a still strong 71.7 from 72.9 in March.

James Brown, CEO of Hardin County State Bank in Eldora, Iowa, said, “Farm operating lines of credit will increase this year due to the loss of working capital on most financial statements for 2023. There is still a reasonable amount of working capital on most balance sheets, but cash flows show breakeven levels at current prices with a normal crop year.”

Hiring: The new hiring index for April climbed to 56.8 from March’s 52.2. “Approximately 13.6% of bankers reported an increase in hiring over March levels,” said Goss. Over the past 12 months, U.S. Bureau of Labor Statistics data indicate that the regional Rural Mainstreet Economy boosted jobs by 2.6%, compared to 0.9% for urban areas of the same states. 

Confidence: Rural bankers remain very pessimistic about economic growth for their area over the next six months. The April confidence index increased to 37.5 from March’s 36.0. “Weak and falling agriculture commodity prices, farm exports and higher interest rates over the past several months continued to constrain banker confidence,” said Goss.

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