Take a bunch of kids, a package of balloons, and mix thoroughly with a hot, sultry summer afternoon. Before long, pandemonium will prevail as water-balloon wars fill the air with brightly colored projectiles. Balloons are stretched tight as the combatants gird for another assault; so tight, in fact, that sometimes they burst before being lobbed at the intended victims.

Take a drought and an ethanol-fueled corn demand and mix thoroughly with a cheap money policy. Before long, pandemonium will prevail as the battle to own farmland heats up the rural economy. The question is whether the rural economic balloon is being filled to its breaking point?

Some ag bankers fear it might be, according to responses to the monthly 10-state rural mainstreet survey of rural bank CEOs conducted by Creighton University economist Ernie Goss.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, dipped to a still healthy 56.9 in March from February’s 58.2. “Very healthy farm income continues to boost the rural mainstreet economy though growth has slowed a bit,” Goss says.

However, more and more bankers are concerned about recent strong growth. For example, Dale Bradley, CEO of The Citizens State Bank in Miltonvale, KS, says, “I still think we are on the bubble.”

Here’s what the March survey revealed:

Farming: The farmland price index (FPI) expanded slightly to a strong 67.2 from February’s 67.0, the 40th consecutive month that FPI has been above growth neutral.

“Current readings are consistent with farmland price growth between 12% and 16%. The farm equipment-sales index declined to 60.5 from 65.8 in February. The Federal Reserve’s cheap money policies continue to bolster farm commodity prices, farm income, farmland prices and farm equipment sales. The Fed has indicated little change in this pro-agriculture money policy for 2013, which means we’ll likely continue to see healthy growth in farmland prices and farm equipment sales,”says Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

This month, bankers were asked several questions related to ag conditions in the region.

  • First, they were asked how much they expected the cost of farm/ranch inputs, such as fertilizer, to increase in 2013. On average, bankers anticipate a 6.5% growth over last year. Jeff Bonnett, president of Havana National Bank in Havana, IL, says he’s expecting a 9% growth.
  • Bankers also were asked how much growth they expected in agriculture land rents for 2013. A 9.3% increase in cash rents for farmland is expected for 2013.
  • Finally, bankers were asked to gauge the growth in the financing of farmland purchases over the past 2-5 years. About 3.2% of bank CEOs say they’re seeing the highest expansion in the financing of farmland in decades, while 52.4% indicated an increase in farmland financing. Another 19% reported no change in the percentage of farmland purchases that were financed, while 28.6% indicated a reduction in financing of farmland sales (i.e., an increase in cash sales).

Banking: The loan-volume index moved above growth neutral for the month to a tepid 51.5 from February’s weak 46.7. The checking-deposit index advanced to 70.5 from 67.2 in February, while the index for certificates of deposit and other savings instruments sank to 42.4 from last month’s 47.6. “Banking data continue to reflect healthy farm income and an expanding rural mainstreet economy,” Goss says. 

Hiring: March’s new hiring index (NHI) slipped to 54.9 from 59.4 in February, but remains higher than January’s 52.4. “The growth rate in new hiring has been trending upward. Since the beginning of 2011, rural companies have been adding new workers.  However, the pace of that new hiring began to increase in October 2012,” Goss says.

Confidence: The confidence index, which reflects expectations for the economy six months out, strengthened to 52.3 from 51.7 in February. “The failure of Washington to pass a new farm bill continues to weigh on the rural mainstreet outlook,” Goss says.

Additionally, weather concerns remain an issue. David Callies, CEO of Miner County Bank in Howard, SD, reports, “Continued drought (is) still the biggest concern.”

A Closer Look: Long-Term Weather Outlook: Cinch Up

Home and retail sales: For a second straight month, the homes sales index (HSI) took a large positive jump. March HSI soared to 69.2 from February’s 65.0, while the March retail-sales index advanced to 51.6 from 46.6 in February and January’s 44.5. “Rural mainstreet consumers remain very cautious in terms of their retail purchases,” Goss says.