Rural Economy Healthy, But Farmland Price Growth Slows

The monthly Rural Mainstreet Index indicates the rural economy continues to expand.

Burt Rutherford, Senior Editor

May 23, 2013

6 Min Read
Rural Economy Healthy, But Farmland Price Growth Slows

For some time now, indicators of the general health of the overall U.S. economy have consistently thrown up caution flags – for good reason. Jobless rates remain high and the threat of the eventual downside of sequestration has put a pall on optimism.

Perhaps some of those Wall Street economists need to stroll down the main streets of America’s rural communities. They might come away with a slightly different perception.

While the general economy sputters along, the rural economy is, for the most part, doing just fine. That message has been a consistent theme in the Creighton University monthly Rural Mainstreet Index (RMI) recently.

In fact, growth strengthened for the rural mainstreet economy over the past month, according to the May survey of bank CEOs in a 10-state area. The RMI, which ranges between 0 and 100 with 50.0 representing growth neutral, climbed to 58.8. That’s its highest level since December 2012, and up from April’s healthy 58.3.

However, with all eyes on planting progress for the year, some sectors of the rural economy could see some changes ahead. Bankers were asked their thoughts on the most significant risks to the rural economy, and almost 60% say low commodity prices are the greatest threat to the farm-based economy for 2013. Another 16.7% believe drought is the number-one threat, while 15.2 % cite the possible bursting of the farmland price bubble

On a positive note, Charles Helscher, president of Farmers Savings Bank in Keota, IA, reports, “The drought appears to be over in southeast Iowa, at least temporarily.” However, he indicated that excessive rain has delayed planting and some bottom ground may not be planted due to flooding.

Farming: The farmland price index (FPI) dipped to a still strong 62.1 from 66.9 in April. FPI has been above growth neutral for more than three years, but has now declined for the fifth time in the past six months. The farm-equipment-sales index declined to 52.4 from 57.3 in April.

“Since the beginning of the year, the U.S. dollar has climbed in value by 5%,” says Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University. “This has been a factor pushing farm commodity prices downward. For example, corn prices have slumped by almost 10% since December of last year. This trend, which I expect to continue in the months ahead, has taken a bit of the air out of farmland price growth and farm-implement-sales growth.”

Banking: The loan-volume index rose to 72.1 from 66.0 in April. The checking-deposit index declined to 54.5 from April’s 63.0, while the index for certificates of deposit and other savings instruments advanced to a weak 42.6 from last month’s 40.4.

“We are recording more and more reports of negative economic fallout from Dodd-Frank,” Goss says. 

Larry Rogers, president of the First Bank of Utica, Utica, NE, says, “Dodd-Frank and new regulations from the Consumer Financial Protection Board are strangling us. New regulations are going to cause us to quit making residential real estate loans, hurting the people these regulations are supposed to be helping.”

Hiring: May’s new hiring index (NHI) expanded to 59.8 from April’s 57.5. “Despite solid job creation across rural mainstreet beginning in January 2011, rural areas are still not back to pre-recession employment levels. Government data show that regional employment is off more than 1.2%,” Goss says.

Bankers pointed to federal policy’s negative impact on job creation. Michael Flahaven, president of Wenona State Bank in Wenona, IL, says, “The Healthcare Reform Act will likely affect employment in this area in the months ahead. The Dodd-Frank regulations will adversely affect community banks.”

Confidence: The confidence index, which reflects expectations for the economy six months out, dipped to 54.5 from 56.3 in April. “Over the past three months, we asked bankers how the federal spending sequestration was affecting their area economy,” Goss says. “Each month, approximately three-fourths of the bank CEOs reported no impact from sequestration. Only 1.5% reported significant impacts with the remaining 20.6% indicating only modest impacts.”

Home and retail sales: For a fourth straight month, the home-sales index (HSI) took a large, positive jump. May HSI advanced to a record 73.9 from April’s 70.8, while the retail-sales index rose to 52.3 from April’s 51.4.

“Despite the growth in home sales, bankers reported a modest 4% growth in housing prices for rural mainstreet over the past year.  However, one in 10 bankers says housing prices in their area have expanded by more than 10% over the past year,” Goss says.

State-by-state outlook

Each month, community bank presidents and CEOs in nonurban, ag- and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural, ag- and energy-dependent portions of the nation. RMI is a unique index covering 10 regional states, focusing on 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.

Colorado: Colorado’s RMI remained above 50.0 for the eighth straight month, though it declined to a still healthy 59.2 from April’s 73.1. The FPI and ranchland price index (RPI) sank to a strong 80.8 from April’s 83.0. Colorado’s NHI for May expanded to 72.5 from April’s 68.8.

Illinois: RMI declined in May but remained above growth neutral for the eighth consecutive month. The index declined to 55.9 from April’s 56.7. FPI sank to 52.1 from April’s much stronger 63.0, while the state’s NHI decreased to 53.4 from 55.5 in April.

Iowa: RMI dipped to 58.1 from April’s 62.3, while FPI sank to 60.7 from 70.0 in April. NHI for May weakened slightly to 59.1 from 60.2 in March.

Kansas: RMI for May decreased to 61.5 from 61.8 in April, and FPI plummeted to 53.6 from April’s much stronger 65.5. NHI declined to 54.4 from 56.6 in April. However, bankers are concerned about recent strong growth. Dale Bradley, CEO of The Citizens State Bank in Miltonvale, says, “The economy is still not stable, and the ups and downs will affect farmers as well.”

Minnesota: RMI advanced to 67.2 from 66.7 in April, while FPI sank to 65.7 from April’s 67.1, and NHI advanced to 62.5 from 61.5 in April. 

Missouri: RMI climbed to 77.0 from April’s 71.7, while FPI expanded to 72.1 from 70.8 in April. NHI rose to 66.7 from April’s 60.7.

Nebraska: After moving below growth neutral for January, RMI has now moved above growth neutral for four straight months. May RMI expanded slightly to 57.7 from 57.3 in April, and FPI sank to 53.9 from April’s 65.4.

North Dakota: RMI advanced to a regional high of 83.7 from 78.8 in April, while FPI climbed to 85.3 from April’s 75.6, and NHI increased to 83.6 from 61.2 in April.  

South Dakota: RMI increased to 60.3 from 57.2 in April, and FPI slumped to 56.6 from April’s 67.4. NHI expanded to 56.3 in May from April’s 55.4.

Wyoming: RMI dipped to 54.4 from 55.1 in April. FPI and RPI fell to 46.2 from April’s 58.0, while NHI sank to 49.4 from 53.2 in April.    


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About the Author(s)

Burt Rutherford

Senior Editor, BEEF Magazine

Burt Rutherford is director of content and senior editor of BEEF. He has nearly 40 years’ experience communicating about the beef industry. A Colorado native and graduate of Colorado State University with a degree in agricultural journalism, he now works from his home base in Colorado. He worked as communications director for the North American Limousin Foundation and editor of the Western Livestock Journal before spending 21 years as communications director for the Texas Cattle Feeders Association. He works to keep BEEF readers informed of trends and production practices to bolster the bottom line.

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