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Banks increase collateral requirements for ag loans


SD Ag Connection - December 26, 2018

OMAHA, NB - More than half of bankers, or 52.8 percent, have boosted collateral requirements for agricultural loans due to low agriculture income. 

"As in the last several months, tariffs, trade tensions, and weak agriculture commodity prices negatively influenced the economic outlook of bank CEO's," said Ernie Goss, a Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business.

While the Creighton University Rural Mainstreet Index for December rose above growth neutral after slipping below the 50.0 threshold in January and the overall index climed to 54.2 from Movember's 49.9, all is not well in farm/ranch country, according to the monthly survey of bank CEO's in rural areas of a 10-state region dependent on agriculture and/or energy.

"Our surveys over the last several months indicate the Rural Mainstreet economy is expanding outside of agriculture. However, the negative impacts of tariffs and low agriculture commodity prices continue to weaken the farm sector," said Goss. 

The farmland and ranchland-price index for December slipped to 35.7 from 35.9 in November. This is the 61st straight month the index has fallen below growth neutral 50.0.

The December farm equipment-sales index increased to 37.1 from November's 30.6. This marks the 64th consecutive month that the reading has moved below growth neutral 50.0.

Borrowing by farmers and ranchers advanced for December, as the borrowing index soared to a 72.2 from November's loan-volume index of 60.6. The checking-deposit index inched forward to 55.6 from November's 54.5, while the index for certificates of deposit and other savings instruments increased to 55.6 from 47.0 in November.

The confidence index, which reflects bank CEO expectations for the economy six months out, slumped to 44.3 from November's 47.0, indicating a pessimistic economic outlook among bankers.

Another survey, the Rural Mainstreet Index (RMI), 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 December RMI for South Dakota remained above growth neutral and increased to 54.9 from November's 51.0. South Dakota's new-hiring index fell to 59.7 from 70.2 in November. A bright spot in the recent analysis is that early financial analysis from farmers seem to point to an improved year in 2018. 

According to Scott Tewksbury, CEO of Heartland State Bank in Tulare, the upward trend is  due to dramatically higher than normal yields, MFP payments and better forward marketing completed the first part of 2018.

Over the past 12 months, South Dakota's Rural Mainstreet economy added jobs at a 1.7 percent pace, while urban areas in the state increased jobs by 1.9 percent.






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