Economic Downturn Hitting the Farm
February Survey Results at a Glance:
- Bank CEOs report a record low Rural Mainstreet economy.
- Farmland-price index remains weak.
- Farm-equipment-sales continue to struggle.
- Rural Mainstreet Economy remains very weak with record job losses.
- Six out of 10 bank CEO’s support executive pay limitations for banks accepting TARP money.
Global Economic Downturn Hitting the Farm: Weakness in Farmland Prices and Farm Equipment Sales
The Rural Mainstreet economy continues to experience significant economic weakness with job losses across the region according to the February survey of bank CEOs in an 11-state region.
The Rural Mainstreet Index (RMI), which ranges between 0 and 100, slumped to 16.9, the lowest reading for the index since the survey began in 2005, and down from January’s 24.5.
“Since February of last year, the Rural Mainstreet Economy has trended downward. For Colorado, Montana, North Dakota and Wyoming, recent weakness in energy prices has hampered growth. For Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska and South Dakota, downward pressures on farm income has been the culprit. This February’s reading compares to a much stronger index of 50.0 for February 2008. The RMI has now moved below growth neutral 50.0 for 12 consecutive months. Of course, all states in the survey area are being negatively affected by the national and global recession,” said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.
Downward pressures on farm income have dampened prices for farmland as the farmland-price index moved into negative territory for a fourth straight month. “After peaking at 81.0 in January of 2008, the index declined to 38.3 in February, which was up slightly from January’s feeble 36.6. Furthermore, the global economic downturn and elevated farm input prices continue to put downward pressures on agriculture equipment sales. The farm-equipment sales index stood at 31.0 for February. While this is up slightly from January’s record low of 29.4, it is down significantly from last February’s 75.4,” said Goss.
As indicated by Dale Torpey, president of Federation Bank in Washington, Iowa, “Land prices have leveled off and in some instances have dropped slightly. If some of the farmers can’t renegotiate their rent prices we could be looking at losing some of them in 2010.”
This month bankers were asked for more details on farmland price changes over the past six months. Almost one-third, or 30.6 percent, indicated that their area had not recorded price decreases in the prices for farmland. On the other hand, 16.3 percent of the bankers reported price declines greater than five percent over the past six months.
For a sixth straight month, the confidence index, which tracks expectations for the Rural Mainstreet economy six months out, stood at a very low level. February’s reading slipped to 21.2 which was down from January’s 25.9, but up from November’s record low 13.0, reflecting concern among bank CEOs about the impact from the current financial crisis, the national recession, and a downturn in farm income.
Hiring in the area has been anemic since the beginning of 2008 and weakened almost every month for 2008 with the negative trend continuing for 2009. The new-hiring index for February dipped to a record low 14.7 from the previous record low of 18.3 in January. “This is the 14th consecutive month that the index has been below growth neutral, due in part to a slowing national economy and a much more negative outlook for the farm economy for 2009,” said Goss.
For February, almost 96 percent of bankers reported that unemployment rates in their area were less than seven percent. According to Patrick Kenner, president of Thayer County Bank in Hebron, Neb., “Industrial layoffs and cut backs have occurred this month in our county, which indicates that the national economic downturn is seeping into our rural economy.”
Like much of the nation, retail sales were very weak for the month with a February retail-sales index of 18.4, a record low, and down from January’s 24.2. “Sharp drops in fuel prices have been more than offset by a recessionary economy,” said Goss.
Just like the national housing market, home sales were very weak for Rural Mainstreet with the home-sales index slipping to 24.6 from 26.7 in January, but up from December’s record low of 15.9.
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. The loan-volume index decreased to 43.9 from 48.3 in January, and checking deposits expanded to 61.4 from January’s 60.8. The index for certificates of deposit and other savings instruments moved lower to a still healthy 56.4 from January’s 57.6.
Bankers also were asked whether they support the executive pay limitations for banks accepting Trouble Asset Relief Program (TARP) money for the U.S. Treasury. Almost two-thirds, or 60.0 percent, indicated they supported such restrictions with only 24 percent reporting that they opposed such limits. But as indicated by David Steffensmeier, president of First National Bank in Beemer, Neb, “The more restrictions you place on the TARP funds there will be fewer banks that participate.”
Each month, community bank presidents and CEOs in non-urban, 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. This survey represents the earliest snapshot of the economy of the rural, agriculturally and energy dependent portions of the nation.
Below are reports for the separate states:
Colorado: Colorado’s Rural Mainstreet Index (RMI) continues to wilt as the downturn in energy prices and a national economic downturn have spilled over into rural areas of the state. The RMI for February slumped to the second lowest among the states at 12.6, down from January’s 16.7. Even so, Colorado’s rural areas have lost only one percent of their jobs over the past year.
Illinois: As in prior months reports from rural bank CEOs in Illinois continue to be very negative. The RMI for February plunged to a low 13.4.
Iowa: Beginning with the floods last summer, Iowa’s Rural Mainstreet economy has been moving lower. The RMI for February stood at a 15.0. The farmland-price index was also below growth neutral with a reading of 34.0. “Things are starting to slow in our area. Still have a lower unemployment rate than nationally, but it is starting to creep up,” said Dale Torpey, president of Federation Bank in Washington.
Kansas: Compared to rural portions in other states, rural area in Kansas have done much better recently. The RMI for February was 25.8, while the state’s farmland-price index was a healthy 58.4.
Minnesota: Minnesota’s RMI moved to a regional low of 9.8 with a farmland-price index for the month at a somewhat less weak 22.2. “Economic activity in St. Cloud has deteriorated significantly in the past several months as a general local economic decline has begun. The area is experiencing an overall reduction in employment with the sole bright spots limited to professional and business services, wholesale trade and federal and local government sectors,” said David Knopick, president of Saint Stevens State Bank in St. Cloud.
Missouri: Missouri’s RMI for February indicated significant weakness in rural, agriculturally dependent areas with a February reading of 19.1. The February farm-equipment index was less than stellar at 35.1.
Montana: While pullbacks in commodity and energy prices have been good for most of the nation, they have clearly negatively affected rural areas of Montana. The February RMI dipped to 17.2.
Nebraska: Nebraska’s rural areas continue to be hammered by falling farm commodity prices and the national economic downturn. Nebraska’s RMI for February was a frail 12.7. As reported by Kathy Thuman, president of Farmers State Bank in Maywood, “With the global decrease in the demand for our commodities, our farmers are particularly vulnerable to increases in input costs. We could see the profit margin disappear.” But Bill McQuillan, CEO of City National Bank in Greeley, said, “The economy in rural Nebraska continues to be positive and we are still open for business.”
North Dakota: We are beginning to see some cracks in North Dakota’s Rural Mainstreet economy. The state’s February RMI was a record low 12.7. At the same time, North Dakota’s farmland-price index was a weak 30.2.
South Dakota: South Dakota’s Rural Mainstreet economy has lost less of its luster than most other state rural areas. The February RMI was 21.2 while the farmland-price index was a stronger 48.1.
Wyoming: Wyoming’s February RMI stood at 29.3. While very weak, this is stronger than the regional reading. “The Wyoming economy is weakening, and with the decline in oil and gas prices, it may weaken further. However, homes are selling but it’s much more of a buyer's market than the seller’s market of 12-18 months ago,” said Bob Sutter, vice-chairman of Hilltop National Bank in Casper.