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Midwest Economy

Midwest Economy

Bankers Expecting 7.8 Percent Decline in Farm Equipment Sales

South Dakota Ag Connection - August 21, 2018

UNDATED - The Creighton University Rural Mainstreet Index climbed above growth neutral in August for a seventh straight month, according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The overall index climbed to 54.8 from 53.8 in July. The index ranges between 0 and 100 with 50.0 representing growth neutral.

"Surveys over the past several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of recent trade skirmishes have begun to surface, weakening already anemic grain prices," said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

According to Jim Stanosheck, CEO of State Bank in Odell, Nebraska, "The tariffs have and are costing our ag customers on grain prices and items they must purchase. Talking to one of my customers this morning, he thought that maybe the tariffs would bring about better prices in the future."

Farming and ranching: The farmland and ranchland-price index for August was unchanged from July's 44.7. This is the 57th straight month the index has fallen below growth neutral 50.0.

In reaction to weak farm commodity prices and income, almost one-third, or 31.0 percent, of bank CEOs reported rejecting a higher percentage of farm loans. More than half, or 54.8 percent, indicated raising collateral requirements, while 4.8 percent reported reducing the size of farm loans.

The August farm equipment-sales index fell to 37.8 from July's 38.8. This marks the 60th consecutive month the reading has moved below growth neutral 50.0.

In terms of the sale of farm equipment over the next 12 months, bankers expect sales to decline by 7.8 percent.

Banking: Borrowing by farmers expanded for August, but at a slower pace than in July, as the loan-volume index declined to 72.2 from 76.9 in July. The checking-deposit index slumped to 36.0 from July's 37.8, while the index for certificates of deposit and other savings instruments increased to 48.8 from 43.9 in July.

Hiring: The employment gauge improved to a very strong 68.7 from July's 65.6. The Rural Mainstreet economy is now experiencing positive job growth. Over the past 12 months, the Rural Mainstreet economy added jobs at a 1.1 percent pace.

Confidence: The confidence index, which reflects expectations for the economy six months out, rose to a weak 46.5 from July's 42.7, indicating a pessimistic economic outlook among bankers.

"Just as last month, an unresolved North America Free Trade Agreement (NAFTA), rising trade tensions/tariffs with China and opening trade battles with Turkey are big concerns," said Goss.

Bankers were asked their position on recently implemented and proposed tariffs on imported goods. More than half, or 51.1 percent, support cutting or eliminating those tariffs. Approximately 41.9 percent support continuing current tariffs and trade policy while 7.0 percent endorse pursuing a more hawkish approach by raising tariffs.

Jeffrey Gerhart, chairman of the Bank of Newman Grove, Newman Grove, Nebraska, said, "Agriculture has been hurt and will continue to be hurt by the current trade war. Tariffs are not good for our farmers. Tariffs are not the answer."

Home and retail sales: The home-sales index decreased to a still healthy 63.1 from 65.9 in July. Retail sales improved for the month to 53.5 from July's 51.2.

Brian Nicklason, president of Woodland Bank in Grand Rapids, Minnesota, reported that, "In the past six months we have had three small locally owned business retailers close. Very little is 'Amazon-proof' and we seem to be becoming more reliant on national chains and fast food. I hope we are not losing our identity."

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 August RMI for South Dakota remained above growth neutral but fell to 55.4 from July's 56.3. The state's farmland-price index increased to 44.9 from July's 42.7. South Dakota's new-hiring index climbed to 67.8 from 56.5 in July. South Dakota's 2017 export of agriculture commodities was $40.4 million.

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