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Rural Mainstreet: 3 of 4 Banks Restructuring Farm Loans
North Dakota Ag Connection - 05/22/2020

The Creighton University Rural Mainstreet Index (RMI) increased slightly from Aprils' record low. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, May's reading represented the third straight month with close to record lows.

Overall: The overall index for May increased to 12.5 from April's record low 12.1, but down significantly from March's weak 35.5. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

"Since this time last year, livestock and grain prices have sunk by 19.1% and 4.7%, respectively. Accordingly, approximately 73% of bankers reported restructuring farm loans. As a result of the restructuring, bank CEOs expect farm loan defaults to expand by only 5.4% in the next 12 months," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

Jeff Bonnett, president of Havana National Bank in Springfield, Illinois, expects the Rural Mainstreet economy to be up six months from now if the covid-19 lockdown has ended.

Farming and ranching: Farmland prices continue to slide. May's reading fell to 39.7 from April's 40.9. This is the 77th time in the past 78 months the index has been below growth neutral.

The May farm equipment-sales index increased slightly to 21.9 from 20.0 in April. This marks the 80th month straight month that the reading has remained below growth neutral 50.0.

Donald Vogel, president and CEO of Farmers National Bank in Prophetsville, Illinois, "Beginning to have a rain pattern (too much) similar to 2019."

Banking: Borrowing by farmers expanded for May, but at a slower pace than in April. The borrowing index slipped to 72.2 from April's 75.8. The checking-deposit index soared to 86.1 from April's 65.6, while the index for certificates of deposit and other savings instruments increased to 48.6 from 48.4 in April.

This month bankers were asked to assess the PPP. Fully 100% of bankers gauged the federal Paycheck Protection Plan as successful, and more than one of five bank CEOs support PPP expansion.

Said Lonnie Clark president of the State Bank of Chandler, Chandler, Minn. "Our farmers are taking the brunt of this and those with a negative Schedule F and no W-3 got no help from the PPP."

James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa said, "I think the community banks in the Midwest should be very proud of the number of small businesses we helped in the PPP program."

According to recently released U.S. Court data calculated by the Farm Bureau, Chapter 12, U.S. family farm bankruptcies for the 12-month period ending March 2020 rose to 627 filings, a 23% increase from the previous 12 months. While this is well below the filings in the 1980s, it still raises concerns for rural communities across the U.S.

Over the 12-month period ending in March 2020, a net increase of 41 of the bankruptcies were in the Rural Mainstreet region. Increases by state were: Iowa +23, Nebraska +22, South Dakota +7, and Minnesota +5. Reductions by state were: North Dakota -10, Kansas -4, Colorado -1, and Wyoming -1.

Rural Mainstreet Bank CEOs expect farm loan defaults to expand by only 5.4% over the next 12 months. Almost three fourths of bankers have restructured farm loans to deal with weak farm income.

Hiring: The employment gauge rose to a frail 17.1 from April's record low 9.4.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, sank to 22.1 from April's 27.4. Weak agriculture commodity prices, and layoffs have decimated economic confidence among bankers.

Home and retail sales: The home-sales index increased to 48.6 from April's 35.9. The retail -sales index for May expanded to a frail 11.1 from April's record low 4.5. U.S. March retail sales suffered their biggest one month decline in three decades. "The retail shutdown from covid-19 devastated the region's retailer," 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.

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.

The North Dakota RMI for May slumped to 11.4 from 11.9 in April. The state's farmland-price index declined to 38.9 from 40.4 in April. The state's new-hiring index moved upward to 11.7 from April's 7.6. "Between the first week of January 2020 to the first week of May, U.S. Department of Labor reported that the state's insured unemployment rate rose from 1.4% to 8.7%," said Goss.

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