Rural Banks Tightening Farm Loan Terms06/17/2016
Rural bank CEO’s have tightened farm loan terms due to low commodity prices, according to this month’s Rural Mainstreet Index (RMI) survey conducted by Dr. Ernie Goss, Creighton University.
The June survey found 73.5% of bankers increased collateral requirements, 50% boosted interest rates and 35.3% rejected a higher percentage of farm loans, according to this month’s survey. In addition, approximately, 17.6% of the bankers reported that their banks reduced the average size of farm loans.
This month’s RMI, which ranges between 0 and 100 with 50 considered growth neutral, rose to 74.9 from May’s 40.9.
“This is the 10th straight month the overall index has remained below growth neutral. Even though agriculture and energy commodity prices have increased recently, they remain well below last year’s prices and from their peak levels in 2011. Over the past 12 months, farm prices are down by 9.5%, grain prices are off by 4% and livestock are down by 15% percent,” says Goss,
The farmland and ranchland-price index for June climbed to 32.3 from April’s 28.4. This is the 31st straight month the index has remained below growth neutral.
Despite declines in farm income, the percentage of farmland cash sales have remained almost unchanged from February 2015, when approximately one-fifth of farmland sales were for cash.
The June farm equipment-sales index expanded to a dismal 12.8 from 10.7 in May. “Weakness in farm income and low agriculture commodity prices continue to restrain the sale of agriculture equipment across the region,” states Goss.
The Rural Mainstreet Index surveys community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area, ranging from Colorado/Wyoming to Illinois and North Dakota/Minnesota to Kansas/Missouri.