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Rural Mainstreet: Loan Default Concerns Drop Significantly
Iowa Ag Connection - 01/22/2021

For the third time in the past four months, the Creighton University Rural Mainstreet Index (RMI) climbed above growth neutral. According to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy, the index increased to its second highest level since January 2020.

Overall: The overall index for January rose to 52.0 from December's 51.6. The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

"Recent sharp improvements in agriculture commodity prices, federal farm support payments, and Federal Reserve's record low short-term interest rates have underpinned the Rural Mainstreet Economy in a solid and positive growth range. However, the rural economy remains well below pre-pandemic levels," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

"Bankers reported that their biggest economic concerns for 2021 are excessive inflation and higher long-term interest rates," said Goss.

Jim Levick, president of Nebraska State Bank in Oshkosh, Nebraska said, "I feel the economy is moving in a positive direction that can be rattled by a combination of higher taxes, higher inflation, and a return of stricter regulation."

Farming and ranching: For a fourth straight month, the farmland price index advanced above growth neutral. The January reading climbed to 56.3, its highest level since July 2013, and was up from 55.0 in December. This is first time since 2013 that Creighton's survey has recorded four straight months of above growth neutral farmland prices.

The January farm equipment-sales index rose to 54.5, its highest reading since April 2013, and up from 50.2 in December. After 86 straight months of readings below growth neutral, farm equipment sales bounced into growth territory for the last two months.

"As a result of the rapidly improving farm economy, the farm Exchange Traded Fund (MOO) traded on the New York Stock Exchange has risen to a record high of $83.32," said Goss.

Banking: Bankers once again reported anemic loan volumes. The January loan volume index dropped to 33.9 from December's 43.7, but up from November's record low 25.8. The checking-deposit index soared to record high 88.0 from December's 78.1, while the index for certificates of deposit, and other savings instruments increased to 46.0 from 42.2 in December.

"Approximately 44% of bank CEOs expect low loan demand to be the greatest issue facing their banks for 2021. This is up from 7% that recorded this as a top concern last year at this time," reported Goss.

"One year ago, 32% of bankers indicated that rising loan defaults and bankruptcies were their greatest concern for 2020. This is significantly above the 4% of bankers that registered this as their greatest 2021 issue," said Goss.

However, 24% indicated that rising competition from untaxed credit unions and Farm Credit posed the greatest 2021 bank threat. This is well up from the 5% recorded last year at this time. Joseph Anglin, senior vice president and chief financial officer at Pioneer Bank & Trust in Rapid City, South Dakota, said, "We compete day-in-and-day-out with them and they simply have a 21% advantage that they can leverage over tax paying banks."

Hiring: The new hiring index fell to 46.0 from December's 50.0, and November's 53.2. Data from the U.S. Bureau of Labor Statistics indicate that nonfarm employment levels for the Rural Mainstreet economy are down by 145,000 (nonseasonally adjusted), or 3.3%, compared to pre-COVID-19 levels, and by 251,000, or 5.6%, from 12 months earlier.

"It will take many months of above growth neutral readings to get back to pre-COVID-19 employment levels for the region," said Goss.

Confidence: The confidence index, which reflects bank CEO expectations for the economy six months out, declined slightly to a still healthy 60.0 from December's 62.9. "Federal farm support payments, improving gain prices, and advancing exports have supported confidence offsetting negatives from pandemic ravaged retail and leisure and hospitality companies in rural areas," said Goss.

Home and retail sales: The home-sales index fell to a still healthy 60.0 from 71.0 in December. The retail-sales index for January increased to a frail 42.0 from 40.6 in December. "Online buying and business closures linked to COVID-19 continue to harm the region's retailers," 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 January RMI for Iowa increased to 51.2 from December's 50.2. Iowa's farmland-price index rose to 55.9 from 54.1 in December. Iowa's new-hiring index for January fell to 46.6 from 50.3 in December. James Brown, CEO of Hardin County Savings Bank in Eldora, reported, "Our ag customer reviews have been much better than we anticipated last fall due to improved commodity prices and insurance payments from the derecho." Over the past 12 months, Iowa's Rural Mainstreet economy has lost 6.0% of its nonfarm employment compared to a 4.5% loss for urban areas of the state.


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