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Rural Index Still Weak: Negative Flows for Fifth of Livestock Farms
USAgNet - 11/29/2016

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.

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