Aug 16 - While growth for the Rural Mainstreet economy remains healthy, it slowed a bit in August, according to the monthly survey of bank CEOs in a 10-state area.
Overall: The Rural Mainstreet Index, which ranges between 0 and 100 with 50.0 representing growth neutral, slipped to 55.8 from July’s 57.3, but was well ahead of last August’s 47.1.
“Last year at this time the drought was weighing on the Rural Mainstreet Economy. This year, weaker agriculture commodity prices are having a dampening impact on the farm economy and businesses tied to agriculture. Even so, the economy continues to expand at a reasonable pace according to bank CEOs,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.
Farming: The farmland-price index declined for the eighth time in the past nine months. The August index fell to 55.8 from 58.2 in August. “Our farmland-price index has been above growth neutral since February 2010. However, lower farm commodity prices are slowing growth in farmland prices. I expect farmland price growth to continue to weaken as agriculture commodity prices soften,” said Goss.
This month bankers were asked to estimate the share of farmland sales going to nonfarm investors. Banking leaders indicated that approximately one-fifth of sales are going to non-farm investors, the same as this spring when the same question was asked.
In some areas of the region, investor purchases are down dramatically. For example, Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., said, “Local farmers have completely driven the nonfarmer investors out of the farmland market by elevating the prices over returns investors demand.”
Furthermore, the inventory of available farmland is down significantly. According to Jim Stanosheck, CEO of State Bank of Odell, in Odell, Neb., “There is very little farm real estate available in the area.”
Farm equipment sales also softened for August with the index moving below growth neutral for the first time since 2009. The index slumped to 49.2 from 50.0 in July. “I am concerned that agriculture equipment dealers may find themselves with higher and higher unsold inventory. The direction we are seeing in agriculture commodity prices, while helpful to livestock producers, is pushing farmers to pull back on their equipment purchases. This trend will begin slowing overall rural growth in the months ahead,” said Goss.
Banking: The loan-volume index remained above growth neutral for the month at 70.5, though it was down from July’s 75.7. The checking-deposit index slipped to 51.7 from July’s 53.7 while the index for certificates of deposit and other savings instruments increased to a very weak 43.5 from July’s 42.0.
This month bankers were also asked when the Federal Reserve should alter or end their $85 billion per month bond buying program named quantitative easing 3. “Approximately 15.8 percent think the program should conclude by the end of 2013. Another 5.3 percent support terminating QE3 by the end of 2014, 56.1 percent indicated the Fed should begin tapering purchases next month, and 22.8 percent recommend keeping the program ‘as is’ until the unemployment rate declines below 7 percent,” said Goss.
Also this month bankers reported on their major competitors for agriculture loans. Almost nine of 10, or 88.3 percent, indicated that Farm Credit was their biggest competitor. Another 8.3 percent of bankers identified other community banks as their chief competitor and 1.7 percent reported large non-community banks as their major competitor and the remaining 1.7 percent said that individual farmer/owners were their biggest competitors.
Many bankers attributed Farm Credit’s competitive position to their tax and funding advantages. For example, Pete Haddeland, CEO of the First National Bank in Mahnomen, said, “Farm Credit has an unfair funding advantage over community banks. It is time for Farm Credit to start paying its fair share of taxes as a government-sponsored enterprise.”
Hiring: August’s hiring index declined to a strong 59.2 from 60.7 in July. “Growth in hiring is definitely slowing for the region even though it remains positive. Businesses directly linked to agriculture and energy are either shedding jobs or adding them at a slow pace,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, fell to 53.4 from 56.6 in July. “Weaker agriculture commodity prices and a decline in farm equipment sales pushed the economic outlook lower for the month,” said Goss
Home and retail sales: The August home-sales index slipped to a still strong 72.5 from July’s 76.6. The August retail-sales index declined to 52.6 from July’s 53.1. “Similar to national trends, rural home sales are continuing to rebound while retail sales continue to grow but at a tepid pace,” said Goss.
Each month, community bank presidents and CEOs in nonurban, agriculturally 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, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, president of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
Colorado: For the 11th straight month, Colorado’s Rural Mainstreet Index remained above 50.0. The August RMI declined to a still healthy 63.4 from July’s 70.5. The farmland and ranchland price index fell to a still strong 70.3 from July’s 75.5. Colorado’s hiring index for August advanced to 75.3 from 73.0.
Illinois: The RMI for Illinois declined to growth neutral 50.0 from 57.6 in July. The RMI has now remained at or above growth neutral for 11 straight months. Farmland prices expanded to 51.2 from July’s 49.1. The state’s new-hiring index dipped to 52.4 from July’s 54.3.
Iowa: The August RMI for Iowa sank to 56.9 from 62.3 in July. The farmland-price index slipped to 53.2 from July’s 54.6. Iowa’s new-hiring index for August declined to 52.4 from July’s 58.0.
Kansas: The Kansas RMI for August decreased to 56.4 from 59.2 in July. The farmland-price index rose to 48.2 from July’s 46.6. The state’s new-hiring index expanded to 53.7 from 52.7 in July.
Minnesota: The August RMI for Minnesota climbed to 54.8 from 53.4 in July. Minnesota’s farmland-price index fell to 40.7 from 51.3 in July. The new-hiring index declined to 48.7 from July’s much stronger 55.8.
Missouri: The August RMI for Missouri declined to a still healthy 61.4 from July’s regional high of 81.2. The farmland-price index for August remained vigorous at 85.2, up from July’s 78.9. Missouri’s new-hiring index sank to 78.4 from July’s 84.2.
Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet Index has been above growth neutral for seven straight months. The August RMI declined to 56.2 from July’s 58.0. The farmland-price index for August slipped to 47.7 from July’s 48.5. Nebraska’s new-hiring index stood at 53.4 down slightly from July’s 53.9.
North Dakota: The North Dakota RMI for August fell to 58.9 from 78.4 in July. The farmland-price index declined to 73.2 from July’s 82.4. North Dakota’s new-hiring index declined to a still very strong 70.4 from July’s 76.5.
South Dakota: The August RMI for South Dakota slipped to 56.8 from July’s 59.9. The farmland-price index for the state increased to 51.2 from July’s 50.8. South Dakota's new-hiring index for August advanced to 55.7 from July’s 55.5. According to David Callies, CEO of Miner County Bank in Howard, “Crops look very good. Could use some rain to finish them.”
Wyoming: The July RMI for Wyoming expanded to 53.0 from 52.6 in June. The July farmland and ranchland price index grew to 41.9 in July from 40.8 in June. Wyoming’s new-hiring index increased to 49.6 from June’s 49.4.