Negative Cash Flows for One-Fifth of Livestock Farmers
November Survey Results at a Glance:
- For a 15th straight month, the Rural Mainstreet Index fell below growth neutral.
- Farmland prices decline for 36th straight month.
- More than seven of 10 bank CEOs indicated that their bank had increased collateral requirements as a result of declining farm income.
- More than one of four bank CEOS indicated that their bank has made no lending changes due to falling farm income.
- More than one-fifth of livestock producers are expected to report negative cash flow for 2016 (cash expenses above cash revenues).
- States trending higher: Iowa and South Dakota; States trending lower: Colorado, Kansas, Illinois, Missouri, North Dakota and Wyoming; States treading water: Minnesota, Nebraska.
The Creighton University Rural Mainstreet Index remained weak with a reading again below growth neutral for the 15th straight month, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: The index, which ranges between 0 and 100 rose to 36.6 from October’s 31.8.
“Farm commodity prices continue to slam Rural Mainstreet economies. Over the past 12 months, livestock commodity prices have tumbled by 27.2 percent and grain commodity prices have slumped by 16.6 percent. The economic fallout from this price weakness continues to push growth into negative territory for seven of 10 states in the region,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
On average, bankers expect one of five livestock producers, or 20.7 percent, to experience 2016 cash expenses greater than cash revenues. “This is approximately the share of grain farmers with expected negative cash flows for the year,” said Goss.
States trending higher: Iowa and South Dakota; States trending lower: Colorado, Kansas, Illinois, Missouri, North Dakota and Wyoming; States treading water: Minnesota, Nebraska.
On a more positive note, Michael Flahaven, president of Wenona State Bank in Wenona, Ill., said, “A generous government payment this fall helped keep some farmers’ cash flow on the positive side.”
Farming and ranching: The farmland and ranchland-price index for November climbed to a frail 30.8 from October’s 25.0. This is the 36th straight month the index has languished below growth neutral 50.0.
The November farm equipment-sales index increased to 15.4 from 13.1 from October.
“Weakness in farm income and low agricultural commodity prices continue to restrain the sale of agriculture equipment across the region. This is having a significant and negative impact on both farm equipment dealers and agricultural equipment manufacturers across the region and is not improving,” said Goss.
Banking: Borrowing by farmers remains solid as the November loan-volume index fell to 52.4 from last month’s 71.6. The checking-deposit index climbed to 67.1 from 63.7 in October, while the index for certificates of deposit and other savings instruments expanded to 46.4 from 40.9 in October.
This month bankers were asked to estimate farm loan defaults rate. And just as in July when the same question was asked, bankers expect loan default rates were approximately equal to 5.0 percent for the next year. As a result of falling farm income, 29.3 percent of bankers have made no changes to their lending practices.
Hiring: After moving below growth neutral 50.0 for three of the past four months, the job gauge climbed to 52.5 from October’s 45.4. For the region, Rural Mainstreet employment is down by 1 percent over the past 12 months. Over the same period of time, urban employment for the region expanded by 1.5 percent.
Confidence: The confidence index, which reflects expectations for the economy six months out, was up substantially to 39.0 from October’s 21.6 but still indicating an intensely pessimistic outlook among bankers. “Continuing weak grain and livestock commodity prices pushed banker’s economic outlooks to November’s and October’s frail readings,” said Goss.
Home and retail sales: Home sales remain the positive indicator of the Rural Mainstreet economy with a relatively strong 58.8 reading for November which was up from October’s 50.1 reading. The November retail-sales index increased to a very weak 37.8 from October’s 36.3.
“Despite low inventories of homes for sale, Rural Mainstreet home sales continue on a positive trajectory, but rural retailers, much like their urban counterparts, are experiencing downturns in sales,” said Goss.
Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included. The survey is supported by a grant from Security State Bank in Ansley, Neb.
This survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.
Colorado: Colorado’s Rural Mainstreet Index (RMI) sank to 51.2 from 68.5 in October. The farmland and ranchland-price index fell to 48.5 from October’s 59.7. Colorado’s hiring index for November rose slightly to 53.9 from October’s 53.1. Colorado job growth over the last 12 months; Colorado Rural Mainstreet, 1.0 percent; Urban Colorado, 2.9 percent.
Illinois: The November RMI for Illinois slumped to 26.6 from 27.5 in October. The farmland-price index expanded to a frail 26.8 from October’s 15.6. The state’s new-hiring index climbed to 51.5 from last month’s 42.8. Said Jim Eckert president of Anchor State bank in Anchor, “Farmland sales in our area are much weaker than a year ago. Prices are softer and even buyers of substantial means are holding off, expecting even lower prices. Illinois job growth over the last 12 months; Illinois Rural Mainstreet, -0.7 percent; Urban Illinois 0.9 percent.
Iowa: The November RMI for Iowa soared to 72.1, a regional high, from October’s 67.1. Iowa’s farmland-price index for November increased to 56.6 from 47.8 in October. Iowa’s new-hiring index for November advanced to a strong 66.2 from October’s 58.7. According to James Brown, CEO of Hardin County Savings Bank in Eldora, “Cash rents are down $25 to $50 per acre in some cases, but many are closer to what they were last year. If commodity prices stay in this range there will be more significant decreases next year.” Iowa job growth over the last 12 months; Iowa Rural Mainstreet, 2.4 percent; Urban Iowa, 0.8 percent.
Kansas: The Kansas RMI for November slumped to 22.5 from October’s 25.7. The state’s farmland-price index for November increased to a feeble 25.6 from 18.9 in October. The new-hiring index for Kansas grew to 49.1 from 42.5 in November. Kansas job growth over the last 12 months; Kansas Rural Mainstreet, -1.5 percent; Urban Kansas, 0.2 percent.
Minnesota: The November RMI for Minnesota tumbled to 24.4 from October’s 26.3. Minnesota’s farmland-price index climbed to 27.7 from 23.8 in October. The new-hiring index for the state expanded to a solid 55.7 from last month’s 50.0. Minnesota job growth over the last 12 months; Minnesota Rural Mainstreet, -0.8 percent; Urban Minnesota 1.9 percent.
Missouri: The November RMI for Missouri decreased to 27.6 from 28.9 October. The farmland-price index fell to 20.9 from October’s 25.8. Missouri’s new-hiring index rose to 29.1 from 18.7 in October. Missouri job growth over the last 12 months; Missouri Rural Mainstreet, -5.6 percent; Urban Missouri 2.1 percent.
Nebraska: The Nebraska RMI for November fell to 37.9 from October’s 51.1. The state’s farmland-price index tumbled to 45.5 from October’s 39.0. Nebraska’s new-hiring index climbed to 59.5 from 55.5 in October. Nebraska job growth over the last 12 months; Nebraska Rural Mainstreet, 0.1 percent; Urban Nebraska, 1.2 percent.
North Dakota: The North Dakota RMI for November expanded to a very frail 28.9 from October’s 20.2. The farmland-price index increased to 27.3 from October’s 18.2. North Dakota’s new-hiring index improved to 30.7 from 19.2 in October. North Dakota job growth over the last 12 months; North Dakota Rural Mainstreet, -5.1 percent; Urban North Dakota, 0.8 percent.
South Dakota: The November RMI for South Dakota fell to 47.1 from October’s much healthier 60.6. The farmland-price index expanded to 45.5 from October’s 42.3. South Dakota’s new-hiring index jumped to 62.2 from October’s 56.7. South Dakota job growth over the last 12 months; South Dakota Rural Mainstreet, 0.7 percent; Urban South Dakota, 3.3 percent.
Wyoming: The November RMI for Wyoming was unchanged for the month with a reading of 19.8 for November. The November farmland and ranchland-price index increased to 23.8 from October’s 12.5. Wyoming’s new-hiring index expanded to 45.4 from October’s 39.9. Wyoming job growth over the last 12 months; Wyoming Rural Mainstreet, -2.9 percent; Urban Wyoming, -3.8 percent.
Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, Dec. 15.