Bankers See Negative Cash Flows for Many Farmers

July 21, 2016 10:28 AM

Rural bankers report just under 20% of their farm customers may face negative cash flows this year, according to Dr. Ernie Goss, Creighton University. His monthly Rural Mainstreet Index (RMI) survey of rural bank CEOs and presidents across 10 Midwestern states fell to 39.8 in July from 43.9 in June. The RMI ranges from 0 to 100 with 50 considered growth neutral. The decline comes after improvements noted in four of the five previous months. This is the 11th straight month the overall index has remained below growth neutral, he notes.

"Over the past 12 months, farm prices have fallen by 9%, and livestock prices are off by 16%. These weak agriculture commodity prices are pushing the overall Rural Mainstreet economy lower," says Goss. In addition, he notes, "as a result of weaker farm economic conditions, bankers expect almost one in five crop farmers, or 19.5%, to suffer negative cash flows where cash expenses exceed cash revenues for 2016."

The survey's farmland and ranchland-price index for July slumped to 31.3 from 32.3 in June. This is the 32nd straight month the index has languished below growth neutral 50.0, he reports.

This month, bankers estimate, on average, farmland prices have fallen by 6% over the past 12 months. However, as in previous months, there is a great deal of variation across the region in the direction and magnitude of farmland prices, with prices growing in some portions of the region.

One bank CEO said, "The cow and calf operators, which dominate our market, are the ones that will feel the affect of the downturn in the market the most."

The July farm equipment-sales index sank to 10.7 from 12.8 in June. "Weakness in farm income and low agriculture commodity prices continue to restrain the sale of agriculture equipment across the region," notes Goss.