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Rural Mainstreet Bankers Report Agriculture Pullback

Rural Mainstreet Bankers Report Agriculture Pullback

December Survey Results at a Glance:

  • Bank CEOs report record low farm-equipment sales.
  • Farmland price index dips to record low. Rural Mainstreet Economy remains very weak with job losses.
  • Almost 48 percent of bankers agree with the use TARP funds for the auto industry.
  • Almost 58 percent of bankers report no downturn yet in 2009 fertilizer prices.

Rural Mainstreet Bankers Report Agriculture Pullback: Sale of Farmland and Equipment Shows Weakness

The Rural Mainstreet Economy continues to suffer with significant pullbacks in economic activity and hiring, according to the December survey of bank CEOs in an 11-state region.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, inched up to a weak 25.0, from November’s record low 22.1. “The weakness in the national economy, declines in exports, and a weaker farm sector are negatively affecting the Rural Mainstreet Economy. Last December, the RMI stood at a much healthier 54.3, well above growth neutral 50.0,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

“As agricultural commodity prices have tumbled, farmland price growth has now moved into negative territory for a second straight month. After peaking at 81.0 in January of 2008, the index declined to 37.1, a record low, from November’s 45.2. The stronger dollar, lower agricultural commodity prices and elevated farm input costs have likewise caused farmers to delay purchases of farm equipment with the December farm-equipment sales index slumping to a record low of 31.6, from 45.2 in November and 47.2 in October.”

“This month, we asked bankers whether recent weakness in agricultural commodity prices had affected fertilizer prices. Almost 58 percent of the bankers reported that prices for 2009 fertilizer had yet to decline,” said Goss.

For a fourth straight month, the confidence index, which tracks expectations for the economy six months out, moved to a very low level. December’s reading advanced to a very weak 15.6 from November’s record low of 13.0, reflecting, concern among bank CEOs about the impact from the current financial crisis, the national recession, and a downturn in farm income. As stated by Kathy Thuman, president, Farmers State Bank in Maywood, Neb., “Everyone is concerned about the precipitous drop in grain prices.”

Hiring in the area began the year anemic and has weakened almost every month for 2008. The new-hiring index for December rose slightly to a feeble 25.8, from November’s record low 23.6, which was down significantly from 35.8 in October. “This is the 12th consecutive month that the index has been below growth neutral, due in part to a national economy that is negatively affecting growth for Rural Mainstreet,” said Goss.

This month, bankers were asked for their opinion on the use of TARP (Troubled Assets Relief Program) funds to assist U.S. auto producers; 87.3 percent agreed with making the funds available to Chrysler, Ford and General Motors. Fewer than 10 percent disagreed with this policy.

However many bankers echoed what John Nelsen, president of First Tier Bank in Holdrege, Neb., who said, “Re-organization under bankruptcy laws may fit the auto industry. It appears to me that labor contracts could be revisited and approved by the bankruptcy court, as well as all aspects of their financial problems. Then, and only then, would I support a government-backed cash injection.”

Like much of the nation, retail sales were very weak for the month with a December retail-sales index of 20.9, up slightly from November’s record low of 18.6. The positive impacts of lower fuel prices were more than offset by the downturn in the national economy.

Just like the national housing market, home sales were very weak for Rural Mainstreet with the home-sales index slipping to a record low of 15.9, from 20.6 in November and 29.0 in October.

Despite the economic weakness sweeping Rural Mainstreet, bankers on Rural Mainstreet reported healthy economic conditions for their banks even as elements of the national banking sector approach a crisis state. As stated by Dale Bradley, CEO of The Citizens State Bank in Miltonvale, Kan., “We are glad to be a community bank in a rural area utilizing the strength of loyal and local customers.” The loan volume index dipped to 44.7 from November’s 46.4, and checking deposits slumped to a still healthy 62.9 from November’s 69.1. The index for certificates of deposit and other savings instruments climbed to 63.6 from November’s strong 60.9.

Rural Mainstreet bankers also commented on the FDIC’s Oct. 18 creation of the temporary Deposit Guarantee Liquidity Program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued, unsecured debt of banks, thrifts, and certain holding companies. Over 87 percent of the bankers reported that their institutions would stay in the program. Only 9.5 percent indicated that their banks would exit the program.

Each month, community bank presidents and CEOs in nonurban, agriculturally and resource-dependent portions of an 11-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, Montana, Nebraska, North Dakota, South Dakota and Wyoming are included. The average community-population size covered by the survey is approximately 1,300 with almost 200 communities represented in the survey.

Below are reports for the separate states:

Colorado: As in the past three months, the state’s non-metro areas are being negatively affected by the pullback in energy prices and in tourism. Colorado’s Rural Mainstreet Index expanded to a still feeble 16.7 from November’s 11.1. On a less negative note, the state’s farm- and ranch-sales indexes stood at 41.7 for December.

Illinois: Reports from the state’s rural bank CEOs continue to be quite negative. The Rural Mainstreet Index for December slipped to 21.2 from November’s 26.5 and October’s 25.0. On the other hand, the state’s farmland-sales index for December of 56.1 indicates that farmland continues to increase in price even as the rural economy slumps.

Iowa: Over the past several months, Iowa’s rural economy – hit by slumping agricultural commodity prices, a pullback in exports and softer biofuels production – has moved lower, according to reports from bank CEOs in rural portions of the state. The Rural Mainstreet Index for December stood at a weak 24.3, identical to November’s reading. Regarding the use of TARP funds to assist auto producers, Jim Brown, CEO of Hardin County Savings Bank in Eldora, proposed, “If they don't get the labor costs in line with the foreign auto makers in the U.S., the plan doesn't have a prayer of succeeding. Perhaps Chapter 11 is the best answer, as long as the government guarantees the warranties on new car sales.”

Kansas: The state’s rural areas continue to experience declining economic fortunes. The December Rural Mainstreet Index rose to a still less-than-healthy 38.2, from 31.6 in November. Even so, there were some positive reports. For example, Joe Kennedy, CEO of First National Bank in Frankfort, said, “Our local lumber yard is doing very well. There are four or five home-remodeling projects that are keeping our contractors and electricians busy.”

Minnesota: Positive economic reports from Minnesota rural bank CEOs were almost nil. The December Rural Mainstreet Index declined to a regional low of 8.6 from November’s 8.9. Despite this weakness, farmland prices expanded for the month with a reading of 52.3. There were numerous reports of harvest-related issues in the state. As reported by Pete Haddeland, CEO of First National Bank in Mahnomen, “Our harvest was very late this year. The corn harvest is not complete yet.”

Missouri: As in prior months, bankers in Missouri’s rural areas reported very weak economic conditions. The Rural Mainstreet Index for December slipped to 18.2 from November’s 25.0 and October’s 33.3. Montana: Pullbacks in commodity and energy prices have negatively affected rural areas of the state. The December Rural Mainstreet Index dipped to 23.2 from November’s 25.0.

Nebraska: While the state’s Rural Mainstreet Index has experienced a significant pullback in economic conditions, it is somewhat stronger than much of the region. December’s RMI stood at 38.2, down from November’s reading of 40.0. Of course, future conditions will depend on agricultural commodity prices and yields. In that regard, Jim Stanosheck, CEO of State Bank in Odell said, “Corn yields were well above average; soybean yields were average as some farmers in southwest Nebraska are still harvesting.” According to Kathy Thuman, president, Farmers State Bank in Maywood, “Yields are good, but moisture content is high, keeping grain in the bin for the immediate future.”

North Dakota: As in past months, North Dakota’s rural economy continues to expand even as the regional rural areas experienced significant pullbacks. The December Rural Mainstreet Index rose to a regional high of 55.9, up from November’s 52.8. South Dakota: Just as in November, the state was one of only two states to be above growth neutral with its Rural Mainstreet Index. The December RMI dipped slightly to 52.5 from November’s 52.8.

Wyoming: For a second straight month, Wyoming’s Rural Mainstreet Index (RMI) moved below growth neutral. December’s RMI was 47.6, well above November’s 37.5. Despite the somewhat negative report for the month, Bob Sutter, vice chair, Hilltop National Bank in Casper, concluded, “The relatively stable price of natural gas is positive for our economy. Skilled workers are still in short supply with a low (at or near the lowest in the nation) unemployment rate.”

Tables 1 and 2 below summarize findings from the November survey with an index above 50.0 indicating growth and an index below 50.0 signifying weakness. Next month’s survey results will be released on the third Thursday of the month, January 15.

Table 1: Rural Mainstreet Economy for Last Two Months and One Year Ago:
(index > 50 indicates expansion)

 

Dec-07

Nov-08

Dec-08

Area economic index

54.3

22.1

25.0

Loan volume

52.2

46.4

44.7

Checking deposits

65.0

69.1

62.9

Certificates of deposit

56.7

60.9

63.6

Farmland prices

77.3

45.2

37.1

Farm-equipment area sales

64.9

43.4

31.6

Home sales

28.0

20.6

15.9

Hiring

50.6

23.6

25.8

Retail business

45.6

18.6

20.9

Confidence index (area economy six months out)

44.5

13.0

15.6




Table 2: The Rural Mainstreet Economy

 

Yes

Maybe

No

1.  Did your Bank decide to stay in the FDIC excess Deposit Guaranty Liquidity Program ?

87.3%

3.2%

9.5%

 

2. Have 2009 projected fertilizer prices declined in your area recently?

20.3%

21.9%

57.8%

 

3.  Do you agree with the use of TARP funds to bail out auto producers?

47.6%

15.9%

36.5%

For historical data and forecasts, visit our website at:
http://www.creighton.edu/business/economicoutlook/

For ongoing commentary on recent economic developments, visit our blog at: www.economictrends.blogspot.com