RMI Reveals Greatest Banking Threat is Farm Foreclosures

The Rural Mainstreet Index (RMI) released each month by Creighton University is becoming a broken record when describing the farm economy – the overall index remaining below growth neutral. The bright spot in the September RMI is the index saw slight improvements, jumping from 39.6 in September to 45.3 in October.  Every state showed a boost in the RMI, except Missouri, where the index slipped to 49.2 from 51.3

The RMI is a survey of ag bankers in a 10-state region. While October’s number showed outlooks are on the rise, it’s the struggling farm economy due to stagnant crop prices acting as a wet blanket on the overall RMI.

 

“As a result of weak farm income and low agriculture commodity prices, approximately 9.5 percent of bank CEOs expect farm loan foreclosures to pose the greatest threat to banking operations over the next five years,” said Ernie Goss, author of the RMI.

The survey showed almost one in 10 bankers expect farm foreclosures to be the greatest challenge to banking operations over the next five years.

“I don’t think the bottom is in in terms of for example foreclosures and delinquencies and bankruptcies,” said Goss. “I think still we’ve got a bottom there ahead of us.”

Surveyed lenders are also keeping a close eye on the Federal Reserve and a possible additional rate hike during the December meeting.

“Rural Mainstreet bankers have been generally supportive of Federal Reserve rate hikes,” said Goss. “Approximately 64.3 percent anticipate one more 2017 rate increase.”

As combines roll across rural America, ag bankers also reporting a mixed back with harvest results. That’s also bleeding over into mixed financial outlooks, especially as basis varies.  The RMI asked bankers to compare current spot prices for a bushel of corn to the average break-even price.

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The survey showed only 2.4 percent of bankers indicated that prices between $3.50 and $3.75 were above break-even levels, whereas 45.2 percent of those bankers say current spot prices are below break-even.

“Where can I find a spot price for corn of $3.50 or above today?” said Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill. “Try $3.00 to $3.20, which is below the break-even by all means.”

“Break-even prices vary from farmer to farmer. (It) depends upon the debt carried by the farmer. It’s all about their cash flow, said Jeffrey Gerhart, president and chairman of the Bank of Newman Grove in Newman Grove, Neb.

The latest RMI also showed pressured equipment sales, with the agriculture equipment sales index falling below growth neutral for the 50th straight month. Average farmland prices in the 10-state region also growing weaker, falling for a 47thstraight month. 

 

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