For a third straight month, the Rural Mainstreet Index (RMI) increased. December’s reading from a monthly survey of bank CEOs in ag-dependent areas in a 10-state region climbed to its highest level since June 2007, advancing to 59.7 from 58.4 in November and 52.9 in October .

Growth in the areas of the region and country tied to ag and energy are outpacing urban areas. The latest survey reveals a very healthy Rural Mainstreet economy, with the gap between urban and rural widening. Bankers reported that 60% of ag producers have contracted or sold their 2011 production. Global demand and alternative energy generation are driving the Rural Mainstreet economy higher.

Despite the strong December report, Eurozone problems are expected to slow growth in ag and energy due to a strengthening dollar and weaker exports. This will tend to push ag and energy commodity prices lower in the first half of 2012. Here’s a look at some specific factors.

Farming: The farmland price index rose to a record high in December, climbing to 84.1 from November’s very strong 75.4. This is the 23rd straight month the index has been above growth neutral. The farm equipment sales index expanded to 73.8, its highest level since February 2008, and up from 68.4 in November.

Across all 10 states, the average cash rent was $191, ranging from $105 in Kansas to $269 in Illinois. About 22% of bank CEOs reported average per acre cash rents above $250.      

Banking: The loan volume index for December increased to 50.8 from November’s 44.2. The checking deposit index, while still healthy at 68.9, was down from November’s 81.7, and the index for certificates of deposit and other savings instruments dipped to a very weak 37.0 from 41.7 last month. Tepid loan demand and healthy checking deposits are consistent with a very strong farm economy across the region.

Hiring: December’s hiring index advanced to 54.6 from 53.4 in November. Year-over-year job growth for Rural Mainstreet communities is about 1.4% compared with 0.8% for urban areas of the region.

Confidence: The economic confidence index, which reflects expectations for the economy six months out, climbed to 61.8 from November’s 57.5.

However, the failure of financial derivative giant MF Global has affected ag producers in the region. About 23% of bankers say the firm’s bankruptcy negatively impacted their ag customers. On the other hand, 52% indicated no impacts, with the remaining 25% reporting that the impacts were unknown at this time.

Home and retail sales: For a fifth straight month, the Rural Mainstreet home sales index dropped below growth neutral to 46.2 from 46.7 in November. The retail sales index for December bounced to a record high 61.6 from 53.3 in November. The record-high retail sales index bodes well for the holiday buying season for merchants in the region while rural housing markets remain weak.