What is in this article?:
- Bankers See Farmland Values Moderate
- State-by-state outlook
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.
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.