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Bankers: Farmland prices may not fall as far as feared

Bankers: Farmland prices may not fall as far as feared

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OMAHA, Neb. — Farmland prices may not decline as much this year as previously feared, according to the most recent Creighton University Rural Mainstreet Index.

This month, and in August 2016, bank CEOs in rural areas of Illinois, Iowa and eight other states dependent on agriculture and/or energy were asked to project the change in farmland prices for the next year.

On average, bankers this month projected a 3.1 percent decline in agriculture over the next 12 months. That is a significant improvement from August 2016 when bankers expected a decline of 7 percent for the next 12 months.

After dropping below growth neutral for 20 straight months, the overall index remained above the 50.0 threshold for May and June, according to bank CEOs in rural areas of Illinois, Iowa and eight other states dependent on agriculture and/or energy.

The index, which ranges between 0 and 100, dipped to 50.0 from 50.1 in May. Prior to May, the last time the overall index was at or above growth neutral was August 2015.

“Stabilizing and slightly improving farm commodity prices helped push the overall index at or above growth neutral for the last two months,” said Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University's Heider College of Business. “Though grain prices remain below breakeven for most farmers, recent improvements in cattle and hog prices have boosted the overall index for Rural Mainstreet Economy to growth neutral.”

The June farm equipment-sales index fell to 26.2 from 26.8 in May, marking the 46th consecutive month the reading has fallen below growth neutral 50.0. Borrowing by farmers was very strong for June as the loan-volume index climbed to 78.3 from last month’s 74.5. Due to weak farm income, almost one fourth of bankers report rejecting a higher percentage of farmer loan applications and approximately 60.9 percent reported boosting collateral on farm loans.

"The vast majority of our farm customers have not been asked for additional collateral and have not required any restructuring," said James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa. "If we have another year like the last two, there will definitely be some.” 

The June index for Illinois rose to 50.6 from 49.2 in May while the farmland-price index expanded to 40.4 from May’s 29.4.

"The most relevant factor to the downturn in our economy — like the rest of the state, with the exception of Chicago — is the lack of leadership in state government," said Jeff Bonnett, president of Havana National Bank in Havana. "We have not had a budget, let alone a balanced budget, for three years now. The impact on state universities and other state agencies along with doctors, dentists, pharmacists and health care specialists has been drastic.”

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