Business

Rural economy gets boost from fed payments

Bankers expect farm loan defaults growing

Farmland in Iowa City. (Liz Martin/The Gazette)
Farmland in Iowa City. (Liz Martin/The Gazette)
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Getting a boost from federal agriculture crop support payments and slightly higher grain prices, a rural economy index for Iowa and nine other Midwest states remained above 50 in December for the fourth consecutive month.

The overall Creighton University Rural Mainstreet Index fell to 50.2 from 54.2 in November. It marked the 10th time in 2019 that the index has remained above 50.

Readings above 50 indicate an expanding economy, while those below 50 signal a contracting economy.

“Bank CEOs, on average, expect approximately 12 percent of grain farmers to experience financial losses for 2020,” said Ernie Goss, professor at Creighton University’s Heider College of Business.

“This is down from last year at this time when bankers projected 15.3 percent of grain farmers to experience negative cash flows for 2019.”

Borrowing by farmers weakened again from December and bankers were asked to project the level of farm loan defaults for 2020.

“One of nine bank CEOs expect 2020 farm loan defaults to expand by 10 percent to 20 percent,” Goss said. “On average, bankers expect 2020 farm loan defaults to grow by approximately 4.0 percent. This is down from an anticipated gain of 4.4 percent for 2019 recorded last December.”

Bankers also were asked about their bank’s response to weak farm income. Almost two-thirds, or 65.7 percent, indicated their bank had increased collateral requirements and 34.3 percent reported that their bank had rejected a higher percentage of farm loan applications.

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The confidence index, which reflects bank CEO expectations for the economy six months out, increased to a still weak 45.8 from November’s 44.4, and continues to indicate a negative economic outlook among bankers.

“The trade war with China and the lack of passage of the USMCA (U.S.-Canada-Mexico Agreement) continued to dampen the economic outlook for the region,” Goss said.

The December Rural Mainstreet Index for Iowa increased to 53.5 from November’s 52.5. Iowa’s farm-land-price index soared to 52.5 from November’s 39.7.

An Iowa State University survey released earlier this month showed an average acre of Iowa farmland increased in value this year.

The value of an average acre of Iowa farmland is estimated at $7,432, up 2.3 percent or $168 from $7,264 in 2018.

In east central Iowa, the average value of an acre of farmland rose 5.9 percent to $8,475 from $8,004 in 2018.

Iowa’s new-hiring index for December slumped to 48.7 from November’s 57.1. Over the past 12 months rural areas in Iowa have experienced job losses with employment growth at minus 0.2 percent compared with a stronger 1.1 percent for urban areas of the state.

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