Most Bank CEOs Expect Farmland Prices to Decline

USAgNet - 11/21/2022

The Creighton University Rural Mainstreet Index (RMI) fell below growth neutral for a sixth consecutive 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 region's overall reading for November once again sank below the growth neutral threshold. The November index did increase to a weak 45.7 from 44.2 in October. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral. This was the sixth straight month the overall reading has fallen below growth neutral.

"The Rural Mainstreet economy is now experiencing a downturn in economic activity. Last month, almost one in four bankers, or 23.1%, reported that the economy was already in a recession," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Farming and ranching: The region's farmland price index rose to 68.2 from October's 58.0. This was the 26th straight month that the index has climbed above 50.0.

Bankers were also asked their expectations for the direction of farmland prices in the next 12 months. Approximately, 60.9% expect farmland prices to plateau at current prices, while 21.7% expect prices to decline over the period. The remaining 17.4% of bankers expect prices to expand, but at a slower pace.

Farm equipment sales: The farm equipment-sales index jumped to a strong 59.5 from October's weak 47.8. The index has risen above growth neutral for 22 of the last 24 months.

This month, bankers were asked if their bank was asking for greater upfront financial commitments for farm loans. Only 13.6% indicated an increase in such commitments. The remaining 86.4% reported no change in upfront commitments for farm loans.

Banking: The November loan volume index dropped to a still strong 65.8 from 76.8 in October. The checking-deposit index increased to 47.7 from October's 34.0, while the index for certificates of deposit and other savings instruments slipped to 45.5 from 46.2 in October.

"Higher farm input costs, greater farm equipment sales, and drought conditions in portions of the region supported strong borrowing from farmers," said Goss.

Bankers were asked this month about their recommendation for the Federal Reserve's interest rate action for next several months. Approximately 30.4% of bank CEOs recommend that the Fed cease raising rates. The largest percentage of bankers, 39.1%, recommend a half-percentage point increase (50 basis points) at its next meetings on December 13-14.

As stated by Jeff Bonnett, president of Havana National Bank in Havana, Ill., "As the Fed has already raised rates six times (375 bps) in 2022, why not take a break in December and let the latest increase have time to settle itself?"

Said Bonnett: "A recession of some type seems imminent for the near future."

Hiring: The new hiring index for November dipped to 49.1 from October's 49.2. Labor shortages continue to be a significant issue constraining growth for Rural Mainstreet businesses. Despite labor shortages, Rural Mainstreet expanded non-farm employment by 3.6% over the past 12 months. This compares to 3.2% growth for urban areas of the same 10 states for the same period of time.

Confidence: The slowing economy, strong energy prices, higher borrowing costs and elevated agriculture input costs pushed the business confidence index down to 27.3 from 30.8 in October. "This is the lowest reading for the confidence index since May 2020," said Goss.

Home and retail sales: The home-sales index sank to a very weak 34.8 from October's 36.0. "This is the sixth straight month that the home-sales index has fallen below growth neutral. A doubling of the 30-year mortgage rate over the past year slowed home sales in the region over that time period," said Goss.

The retail-sales index for November weakened to 45.5 from October's 50.0. "Bankers were pessimistic regarding the economic outlook for the Christmas and holiday buying season as they expect growth at less than 1.0%, or 0.8%, from the 2021 season," said Goss.

The survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. The index provides 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 and launched it in January 2006.


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