The Rural Mainstreet Index, which looks at the overall health of rural communities, declined in June, driven in part by farmland values, which continue to grow but at a slower pace.

Burt Rutherford, Senior Editor

July 11, 2012

6 Min Read
Bankers See Farmland Values Moderate

Has the farmland price bubble burst? Probably not, as farmland values continue to rise, but drought as well as international recession and monetary concerns have moderated the uptrend somewhat.

“Our surveys point to slower but positive growth for the agriculturally and energy dependent areas of the nation,” says Creighton University economist Ernie Goss. “The global economic slowdown, combined with a stronger U.S. dollar, has pushed agriculture and energy prices lower. This is weakening overall growth for the Rural Mainstreet economy.” 

Goss calculates a monthly Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral. For June, the index declined to 56.7, its lowest level since October of last year, and was down from last month’s 58.5. RMI is a unique index covering 10 regional states, and focusing on 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.

Here’s a look at the factors contributing to the health of the rural economy: 

Farming: The June survey shows farmland prices continuing higher. However, for a third straight month, farmland price growth weakened with the June index dropping to 60.0, its lowest level since July 2011 and down from last month’s 64.6.

Even so, this is the 29th consecutive month that RMI has been above growth neutral. The farm-equipment sales index sank to 54.7, its lowest level since July of last year and down significantly from last month’s 65.1. “Europe’s economic turmoil has pushed the value of the U.S. dollar higher and agriculture prices lower. Over the past two months, for example, farm products have declined by 3%. This is slowing growth in the farm sector for both farmland and farm-equipment sales,” says Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University in Omaha, NE.

Of bankers with cattle operations in their area, almost a fourth say farmers are reducing herd size due to dry weather. Dan Coup, First National Bank CEO in Hope, KS, reports that drought conditions forced some ranchers to move cattle off grass. “Several ranchers are hauling water to cattle on grass due to lack of pond water. One rancher lost 22 head of cattle caused by blue-green algae in his farm pond,” he says.

Steven Lane, CEO of Security Savings Bank in Farnhamville, IA, adds that dry conditions have not only affected cattle herds, but land and equipment sales.

Banking: Farmers increased their demand for loans, with the loan-volume index climbing to 64.2 from May’s 56.9 – the fourth consecutive month of a rising index. The checking-deposit index sank to 55.3 from May’s 62.9, while the index for certificates of deposit and other savings instruments slumped to 38.9 from 41.7 in May. “As farmland prices and farm-equipment sales have risen, so have farmers’ financing demands. Each month, farmers are reducing the amount of cash purchases of farmland and farm equipment and increasing the degree of bank financing,” Goss says.

Hiring: June’s hiring index dipped slightly to 59.1 from 59.2 in May. “Job growth across the rural mainstreet economy continues to exhibit a great deal of geographic variation with strong growth in Colorado, Iowa, Kansas, Minnesota, and North Dakota. Employment growth was much weaker in rural Illinois, Missouri, Nebraska, South Dakota and Wyoming. Overall government data shows that job growth in urban areas is currently double that in rural areas,” Goss says.

Confidence: The confidence index, which reflects expectations for the economy six months out, dipped to 58.5 from May’s 60.2. “European economic problems, weaker farm prices and slower global economic growth failed to significantly lower optimism among bankers in our survey regarding the outlook for their local economies,” Goss says.

Home and retail sales: For a second straight month, the June home-sales index set a record high at 66.4 from May’s 65.2, while the retail-sales index for June slipped to 54.6 from 54.7. “The pace of sales for homes in the area is definitely picking up, much like it is inurban areas of the country. As a result of strong farm income over the past couple of years, retail sales continue to expand as well,” Goss says.

State-by-state outlook

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.

Colorado: For the 18th straight month, Colorado’s Rural RMI remained above growth neutral. The June index declined to a still solid 57.6 from 65.2 in May. The farmland and ranchland price index declined to 62.4 from May’s 77.9. Colorado’s hiring index for June was 57.5, down from May’s 65.3. According to Fred Bauer, president of Farmers Bank in Ault, “Drought is still going on in our area, affecting crops (will have lower yields) and what moisture we have had came with hail in some areas.”

Illinois: For the first time in more than two years, Illinois’ RMI moved below growth neutral, slumping to 43.6 from May’s 50.4. Farmland prices remained above growth neutral at 51.5 from May’s 56.0. The state’s new-hiring index (NHI) dipped to 50.2 from 50.6 in May.

Iowa: Iowa’s June RMI decreased to 56.1 from 60.2 in May. The farmland price index (FPI) slipped to 64.6 from May’s 68.7. Iowa’s NHI for June dipped to 58.9 from May’s 59.1.

Kansas: The Kansas RMI for June slumped to 50.7 from May’s strong 62.1. FPI sank to 59.6 from 70.9 in June, while the state’s NHI decreased to 55.6 from May’s 60.5.

Minnesota: The June RMI for Minnesota expanded to 62.1 from 59.8. Minnesota’s FPI dipped to 67.4 from 71.6 in May, and its NHI advanced to 60.9 from May’s 60.5. Bryan Grove, CEO of American State Bank in Grygla, summarized what many bankers reported for the month, “Recent timely rains in our area were very welcome. Small grain crops are developing nicely with great potential.”

Missouri: Missouri’s RMI declined to 48.9 from 51.8 in May. June FPI slipped to 51.2 from 52.5 in May, while NHI slumped to 41.4 from May’s 52.3. Don Reynolds, president of Regional Missouri Bank in Salisbury, reports that “dry weather and poor crop prospects are starting to take a toll on attitudes.”

 Nebraska: Nebraska’s June RMI rose slightly to 50.9 from 50.1 in May, with FPI slipping to 53.4 from 54.2 in May, and NHI advancing to a tepid 51.4 from May’s 49.4

North Dakota: RMI for June declined to a robust and regional high of 88.9 from 91.5 in May. Meanwhile, FPI expanded to 90.2 from 88.5 in May, and NHI declined to 79.4 from 92.2 in May. North Dakota’s expansion continues and is the healthiest in the region and nation.    

South Dakota: South Dakota’s RMI slipped to 49.5 from May’s growth-neutral 50.0. FPI dipped to 51.5 from 57.2 in May, while NHI dipped to 50.2 from 51.4 in May.     

Wyoming: June RMI for Wyoming slumped to 46.8 from 52.3 in May. The June farmland and ranchland price index declined to 53.4 from 58.8 in May, while NHI sank to 51.5 from 52.5 in May. Bob Sutter, vice chair of Hilltop National Bank in Casper, reports that Wyoming’s state revenues are down due to the low natural gas prices, even though the oil exploration continues at a high level. “This is due in part to our strong oil and gas exploration infrastructure that is active both in Wyoming and in the North Dakota shale play,” he says.

 

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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