Farm Income Still Driving the Economy
February Survey Results at a Glance:
- Rural Mainstreet Index declines but still strong.
- Approximately one in 12 bankers expect farmland prices to decline in 2012.
- Twenty-five percent of bankers back keeping federal agriculture support payments as they are.
- Rural Mainstreet businesses add workers for the month.
- Approximately 58 percent of bank CEOs expect a Federal Reserve rate hike in 2013.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, dipped a bit from January’s very strong level, declining to 59.6 from January’s 59.8.
Farm income continues to be the big driver of the Rural Mainstreet Economy. According to Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, “Agriculture had another strong year with all indications that 2012 will continue to be positive for farmers.”
Despite the strong February numbers, Creighton University economist Ernie Goss said, “I expect to see a bit slower growth in farm income as a result of somewhat softer agriculture commodity prices and higher input prices. This will dampen growth for the Rural Mainstreet Economy for 2012. However, growth will continue to be healthy but it will not match the 2010 to 2011 expansion.” Goss and Bill McQuillan, CEO of CNB Community Bank in Greeley, Neb., created the monthly economic survey in 2005.
Farming: After falling in January from December’s record level, farmland prices once again headed higher. The index for February climbed to 75.0 from 74.3 in January and down from December’s 84.1. This is the 25th straight month the index has been above growth neutral. The farm equipment sales index sank to a still robust 63.4 from January’s 72.3.
“We have yet to detect any downturn in growth rates for farmland prices and other factors tied to agriculture. I am concerned that any significant slump in agriculture commodity prices or an increase in interest rates could take a lot of the air out of the farmland price bubble,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
Bankers were asked what their forecast was for farmland prices in 2012. More than one in five bankers, or 21 percent, expect farmland prices to expand by more than 6 percent, while 46 percent forecast farmland price growth between 1 percent and 5 percent. On the other hand, 25 percent anticipate no change in farmland prices for 2012, and 8 percent expect farmland prices to decline.
Pete Haddeland, CEO of First National Bank in Mahnomen, Minn., confirmed other banker reports saying, “Land prices and cash rents continue to go up.” Larry Rogers, president of the First Bank of Utica in Utica, Neb., said, “Just heard the most recent sale price for farmland was $12,000 per acre in three different sales.”
In terms of federal deficit reduction, bankers were asked what changes to federal agriculture support payments they would back. Only 10 percent supported eliminating agriculture subsidies in 2012 but 41 percent indicated that they would support a phaseout over five years. One in four, or 25 percent, indicated that there should be no change to the current payment system while another 24 percent supported limiting agriculture subsidies to farms with less than $500,000 in revenues.
According to David Steffensmeier, president of the First National Bank in Beemer, Neb., “Any type of support payments should be under the revenue insurance program where the government supports the premiums and this support should phase out over 10 years.”
Jim Stanosheck, CEO of State Bank of Odell, Neb., argues that “It is difficult to continue agricultural subsidies with past and current prices while other programs are being cut. However, there does need to be some type of a program in place when commodity prices fall.”
Banking: Very strong cash balances among farmers continue to weaken loan demand. The loan volume index for February slumped to 31.2 from January’s 45.5 and December’s 50.8. The checking deposit index dipped to a very healthy 64.5 from 68.2 in January, while the index for certificates of deposit and other savings instruments climbed to a tepid 50.0 from January’s weaker 47.8.
Contrary to most other bankers, Larry Rogers, president of the First Bank of Utica in Utica, Neb., said, “Our bank had a 20 percent increase in deposits the first three weeks of 2012.”
Hiring: February’s hiring index rose to 53.7 from January’s 51.5. “Year-over-year job growth for Rural Mainstreet communities is almost double that for urban areas of the region,” said Goss.
Confidence: The economic confidence index, which reflects expectations for the economy six months out, rose to 60.3 from January’s 56.1. “Improving national economic reports are clearly and positively affecting the economic outlook of bankers in our survey,” said Goss.
Home and retail sales: For the first time since July of last year, the Rural Mainstreet home sales index climbed above growth neutral with a February reading of 51.5, up from January’s 49.2. The retail sales index for February sank to 50.0 from January’s 51.5.
“Very healthy farm income has yet to translate into consistent healthy retail sales and home sales for Rural Mainstreet merchants,” said Goss.
Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of the 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. This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation.
The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.
Colorado: For the 14th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above growth neutral. However, the index for February declined to a still solid 54.7 from January’s 72.7. The farmland and ranchland price index sank to 67.8 from 78.9 in January. Colorado’s hiring index for February was 51.0, down from January’s 65.8. Year-over-year job growth: urban, 0.5 percent; Rural Mainstreet, 4.7 percent.
Illinois: The RMI for Illinois remained above growth neutral for the 22nd straight month, though the February RMI sank to 53.9 from January’s 61.1. Farmland prices remained significantly above growth neutral with a reading of 80.1, up from 77.7 in January. The state’s new hiring index dipped to 50.5 from January’s 55.5. Year-over-year job growth: urban, 0.4 percent; Rural Mainstreet, 2.9 percent.
Iowa: Iowa’s February RMI advanced to 57.9 from 57.3 in January. The farmland price index dipped to 68.1 from January’s 68.2. Iowa’s new hiring index for February slipped to 51.2 from 51.4 in January. 50.7. Larry Winum, president of Glenwood State Bank in Glenwood, said, “Loan demand and housing activity remain extremely slow.” Year-over-year job growth: urban, 0.5 percent; Rural Mainstreet, 1.3 percent.
Kansas: The Kansas RMI advanced to 55.5 from 52.6 in January. The farmland price index climbed to 68.6 from 62.6 in January. The state’s new hiring index grew to 51.5 from 47.9 in January. However, Dale Bradley, CEO of the Citizens State Bank in Miltonvale, argued, “High oil prices do not bode well for a struggling U.S. economy.” Year-over-year job growth: urban, 1.0 percent; Rural Mainstreet, 0.8 percent.
Minnesota: The February RMI for Minnesota rose to 56.2 from 49.9 in January. Minnesota’s farmland price index bounced to 69.3 from January 57.8. Minnesota’s new hiring index rose to 52.0 from January’s 45.5. Year-over-year job growth: urban, 1.0 percent; Rural Mainstreet, 0.9 percent.
Missouri: The RMI for Missouri jumped to 54.3 from January’s weak 47.8. The farmland price index for February advanced to 67.3 from January’s 52.2. Missouri’s new hiring index inched higher to 50.7 from 50.6 in January. Year-over-year job growth: urban, 0.6 percent; Rural Mainstreet, -3.9 percent.
Nebraska: The February RMI for Nebraska rose to 61.7 from 58.8 in January. The farmland price index jumped to 79.2 from 73.5 in January. Nebraska’s new hiring index advanced to 55.6 from 53.4 in January. Year-over-year job growth: urban, 1.7 percent; Rural Mainstreet, 0.8 percent.
North Dakota: The North Dakota RMI for February declined to a still strong 67.0 from January’s regional high 87.2. The farmland price index advanced to 80.1 from January’s 74.2. North Dakota’s new hiring index slipped to 59.2 from January’s 78.7. Year-over-year job growth: urban, 2.9 percent; Rural Mainstreet, 10.3 percent.
South Dakota: The February RMI for South Dakota grew to 57.1 from 51.2 in January. The farmland price index bounced to 70.2 from January’s 60.1. South Dakota's new hiring index for February advanced to 52.6 from 46.7 in January. Year-over-year job growth: urban, 1.3 percent; Rural Mainstreet, 1.7 percent.
Wyoming: The February RMI for Wyoming jumped to a regional high of 72.5 from January’s 59.0. The February farmland and ranchland price index bounced to 85.6 from 73.9 in January. Wyoming’s new hiring index advanced to 59.0 from January’s 53.6. Year-over-year job growth: urban, 3.5 percent; Rural Mainstreet, 1.7 percent.