For the next five years, bankers expect an increase in farm loan foreclosures, due to a slumping ag economy, according to a Midwest survey released Thursday.

The Creighton University Rural Mainstreet Index (RMI) is a monthly rating of a survey of community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area.

Bankers in the following states are involved in the survey: Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wyoming.

On Thursday, Creighton University released its index’s results for October. It rose from September’s reading, but remained below growth-neutral.

Impact of Low Commodity Prices

The index, like all indices in the survey, ranges between 0 and 100, increased to 45.3 from 39.6 in September.



“As a result of weak farm income and low agriculture commodity prices, approximately 9.5% of bank CEOs expect farm loan foreclosures to pose the greatest threat to banking operations over the next five years,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider college of business, according to a press release.



The farmland and ranchland-price index for October slipped to 39.3 from 39.6 in September. This is the 47th straight month the index has fallen below growth-neutral 50.0, the press release stated.



Bankers were asked to compare current spot prices for a bushel of corn to break even. Only 2.4% of bankers indicated that prices between $3.50 and $3.75 were above breakeven. Approximately 45.2% reported current spot prices were below breakeven.



Jeffrey Gerhart, president and chairman of the Bank of Newman Grove in Newman Grove, Nebraska, says the break-even prices vary from farmer to farmer. “It depends upon the debt carried by the farmer. It’s all about their cash flow,” Gerhart stated in the Creighton RMI press release.



However, Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Illinois, stated in the RMI press release, “Where can I find a spot price for corn of $3.50 or above today? Try $3.00 to $3.20, which is below the breakeven, by all means.”



The October farm equipment-sales index increased to 29.3 from September’s 27.4. This marks the 50th consecutive month the reading has dropped below growth-neutral 50.0.

Banking

Borrowing by farmers was strong for October as the loan-volume index fell to a still strong 67.9 from 73.2 in September. The checking-deposit index was 54.8, up from September’s 51.2, while the index for certificates of deposit and other savings instruments sank to 44.1 from 46.6 in September.



“Rural main street bankers have been generally supportive of Federal Reserve rate hikes. Approximately, 64.3% anticipate one more 2017 rate increase,” said Goss in the RMI press release.

Confidence on Economy

The confidence index, which reflects expectations for the economy six months out, increased to a weak 37.0 from 36.1 in September, indicating a continued pessimistic outlook among bankers, according to the press release. “Concerns about trade, especially current NAFTA negotiations, and low agriculture commodity prices impaired bankers’ economic outlook for the month,” stated Goss in the RMI press release.



The Rural Mainstreet Index (RMI) focuses on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy, according to the Creighton RMI press release.