Rural Bankers: 18% of Grain Farmers Facing Negative Cash Flow

This year will again be a critical point in the progression of deterioration of balance sheets from this depressed farm economy. ( AgWeb )

The March 2019 Rural Mainstreet Index (RMI) has moved to the highest level since December 2018, showing above-neutral growth for the rural economy. The monthly survey of bank CEOs in a 10-state Midwest region increased to 52.9 for this month. In February, the index was 50.2. March marks the 11th time in the past 12 months the index has been above the growth-neutral rating of 50.

“Our surveys over the last several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of tariffs and low agriculture commodity prices continue to weaken the farm sector,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI. 

Bankers were asked to estimate the percentage of grain farmers in their area that were projecting negative cash flow for 2019. On average, bankers expect 18% of grain farmers to experience expenses to exceed revenue for 2019. This is 1% higher than last March’s results when the same question was asked.

 

Source: Rural Mainstreet Index, March 2019

“2019 will again be a critical point in the progression of deterioration of balance sheets from this depressed farm economy,” reported Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill. “Working capital buffers have been greatly reduced by negative cash flows the last four years with cash flows again stressed to negative for the current crop year.”

However, strong yields and last year's market facilitation payments on soybeans have slowed the financial decline, Kuhlmeier added. 

The No. 1 reaction by bankers to help financially stressed farmers was restructuring loans, according to nearly 83% of responding bankers. Another 14% indicated farmers were slow paying their loans and 3% reported financially stressed farmers selling the farm to more economically viable farm operators.   

The confidence index, which reflects bank CEO expectations for the economy six months, fell to a low 45.7 from February’s 48.5, indicating a pessimistic economic outlook among bankers.

“March floods, tariffs, trade tensions and anemic farm income negatively influenced the economic outlook of bank CEOs,” Goss says.  

Bearish Picture for Farmland Prices

The farmland and ranchland-price index for March slumped to 36.4 from February’s 42.2. This is the 64th straight month the index has fallen below 50.  

Here’s a state-by-state look at the farmland and ranchland-price indexes:

  • Colorado: 36.8, down from February’s 42.7
  • Illinois: 34.8, down from February’s 42.3
  • Iowa: 35.7, down from February’s 41.9
  • Kansas: 35.7, down from February’s 42.4
  • Minnesota: 36.1, down from February’s 41.4 
  • Missouri: 34.9, down from February’s 43
  • Nebraska: 35.8, down from 42
  • North Dakota: 37.7, down from February’s 42.8  
  • South Dakota: 36.7, down from February’s 42.5
  • Wyoming: 37, down from February’s 43.3

Economic Impact of Midwest Flooding

A large share of survey responses occurred before most of the negative impacts of the recent floods became widely known. Here's how bankers rate the flooding impacts.

 

Source: Rural Mainstreet Index, March 2019

The RMI represents an early snapshot of the economy of rural agricultural and energy-dependent portions of the nation. It covers 10 regional states, focusing on 200 rural communities with an average population of 1,300.

Read More

40% of Rural Bankers Peg Loan Defaults as 2019's Biggest Challenge

Meet the man behind the Rural Mainstreet Index: Ernie Goss.

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