Rural Banker Sentiment Most Negative Since August 2009

January 21, 2016 10:38 AM

Negative attitudes in the heartland continue to deepen, according to the Creighton University Rural Mainstreet Index. This month's reading of attitudes of rural bank leaders in 10 Midwestern states pegs its index, which ranges from 0 to 100, at 34.8, down from December's 41.5.

"This is the fifth straight month the overall index has declined, and the lowest reading since August 2009," says Creighton University's Dr. Ernie Goss, who conducts the monthly survey. "Recent declines are the result of lower agriculture and energy commodity prices and downturns in manufacturing. Over the last 12 months, prices for farm products have fallen by approximately 15% and for fuels by roughly 20%," he notes.

"Sinking prices for grain and fuel have had moderate impacts on the region's ethanol industry. Approximately one-fifth of the bank CEOs reported that ethanol plants in their area had reduced production, while seven of 10 bankers indicated that ethanol plants had made no changes to their production levels," states Goss.

Meanwhile, the accompanying farmland and ranchland price index for January sank to 23.9 from December's 28.8. "This is the 26th straight month the index has moved below growth neutral (50). But, 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," observes Goss.

The January farm equipment-sales index plummeted to a record low 7.0 from December's record low 8.8. "The strengthening U.S. dollar and global economic weakness have pushed grain prices down by 8% and slaughter cattle prices 28% lower over the past 12 months. These weaker prices have discouraged farmers from buying additional agriculture equipment, and have negatively affected the agriculture equipment dealers and manufacturers in the region," he says.

This month bankers were asked to identify the greatest economic threat to community banks for 2016. Half of the bank CEOs identified rising regulatory costs as the biggest challenge to community banks over the next year.

According to Pete Haddeland, CEO of the First national Bank in Mahnomen, Minn., "Our regulatory costs now exceed $200,000 per year for compliance/audit."

Furthermore, only 28.3% of bankers expect an additional Federal Reserve rate hike in the first half of 2016 and 15.3% anticipate no Fed rate hikes in 2016.