ARTICLE

Low commodity prices major economic challenge

Third of bankers report ethanol plant shutdowns

More than a third of bankers in Iowa and nine other Midwest states view low corn and soybean prices as the greatest economic challenge over the next 12 months for their bank.

“Even with a slight recent rebound in prices, farm commodity prices are down by 7.3 percent over the last 12 months,” said Ernie Goss, professor of economics at Creighton University’s Heider College of Business.

”As a result, and despite the initiation of $16 billion in USDA farm support payments, only 3 percent of bankers reported positive economic growth.”

Goss said the Creighton University Rural Mainstreet Index, compiled from a survey of bank chief executive officers in the region, increased to 37.9, but up from May’s 12.5 and April’s record low 12.1.

The index ranges between 0 and 100 with a reading of 50.0 representing growth neutral.

More than one-fourth, or 27.3 percent, of the bankers indicated that rising loan defaults represented as major challenge for their banks for the next 12 months.

Borrowing by farmers expanded for June, but at a slower rate than in May. The borrowing index fell to 63.6 from May’s 72.2.

Bankers were asked the current operational status of ethanol plants in their area.

Almost one-third of bankers with local ethanol plants reported current production shutdowns, either permanent and temporary.

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One bright spot in the survey was new hiring, which exceeded layoffs in June with an index of 51.5, up from May’s frail 17.1 and April’s record low 9.4.

“Even so, data from the U.S. Bureau of Labor Statistics indicate that employment levels for the Rural Mainstreet economy are 12 percent below year ago levels,” Goss said.

“It will take many months of readings above 50 to get back to pre-COVID-19 employment levels for the region.”

The survey’s confidence index, which reflects bank CEO expectations for the economy six months out, improved to 43.8 from May’s 22.1.

“Weak agriculture commodity prices, and layoffs have decimated economic confidence among bankers,” Goss said.

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