Weak commodity prices, high unemployment and ongoing uncertainty caused by the COVID-19 pandemic are weighing heavily on the U.S. rural economy, according to the Rural Mainstreet Index (RMI). The monthly survey of bank CEOs in a 10-state Midwest region sits at 37.9 for June 2020.
June’s reading represented the third straight month with recessionary economic conditions. While June’s 37.9 is well below growth neutral, it is up from May’s 12.5 and April’s record low 12.1. The index ranges between 0 and 100, with 50 representing growth neutral.
“Even with a slight recent rebound in prices, farm commodity prices are down by 7.3% over the last 12 months. As a result, and despite the initiation of $16 billion in USDA farm support payments, only 3% of bankers reported positive economic growth,” says Ernie Goss, who chairs Creighton’s Heider College of Business and leads the RMI.
More than 75% of bank CEOs reported an economic downturn in their local area, with 9% reporting a deep recession and nearly 67% reporting a modest recession.
Here’s how the bank CEOs responded to: What is the biggest economic challenge for agriculturally dependent community banks for next 12 months?
- Low farm commodity prices: 34%
- Rising loan defaults: 27%
- Competition from Farm Credit: 18%
- Low loan demand: 6%
- Other: 15%
Bank CEOs were also polled on the current operation status of ethanol plants in their area. Almost one-third of bankers with local ethanol plants reported current production shutdowns, either permanent or temporary.
The farmland and ranchland-price index for June sits at 46.8, which is up from May’s 39.7. This is the 78th time in the past 79 months the index has been below growth neutral.
Borrowing by farmers expanded for June, but at a slower rate than in May. The borrowing index fell to 63.6 from May’s 72.2. The checking-deposit index declined to 77.3 from May’s 86.1, while the index for certificates of deposit and other savings instruments increased to 51.5 from 48.6 in May.
“Loan volume and checking deposits were impacted by the PPP loan program, causing spikes in deposit growth until the businesses spent the money,” reported Todd Douglas, CEO of the First National Bank in Pierre, S.D. “We expect deposits to decrease in the next 45 days while the loans will remain elevated until borrowers get the debt forgiveness from the U.S. government.”
New hiring exceeded layoffs for June with an index of 51.5, up from May’s frail 17.1 and April’s record low of 9.4.
“Even so, data from the U.S. Bureau of Labor Statistics indicate employment levels for the Rural Mainstreet economy are 12% below their year ago levels. It will take many months of above growth neutral readings to get back to pre-COVID-19 employment levels for the region,” Goss says.
The confidence index, which reflects bank CEO expectations for the economy six months out, improved to 43.8 from May’s 22.1.
“Weak agriculture commodity prices, and layoffs have decimated economic confidence among bankers,” Goss says.