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Rural Mainstreet Economy Bounces Up for Month and Year

Financing of Farmland Purchases Declines

May Survey Results at a Glance:

  • Rural Mainstreet Index dips to a still strong level.
  • Rural home sales expand at a record pace in May.
  • Farmland prices continue to grow but at a slower pace.
  • Approximately one-fourth of bank CEOs report record-low, loan-to-deposit ratios.
  • More than one-third of bankers indicate the percentage of farmland purchases financed has declined over the past year with only one in 10 reporting an increase.

Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, rose to 58.5 from April’s healthy 57.1. As indicated by Jeff Bonnett, president of Havana National Bank in Havana, Illinois, “Our bank is encouraged with the ag(riculture) environment at this time” with early planting and great early growing conditions.

Creighton University economist Ernie Goss said, “Even though downturns in energy prices are a positive for the Rural Mainstreet economy, I expect softer agricultural commodity prices and slower global economic growth to restrain growth in the months ahead.”

Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

Farming: Farmland prices continue to head higher, according to bankers surveyed. However, for a second straight month, farmland price growth softened with the May index dipping to 64.6 from April’s healthy 69.4 and March’s robust 78.7. This is the 28th consecutive month the index has been above growth neutral.

The farm-equipment sales index rose to 65.1 from 62.4 in April. “Economic growth among countries importing U.S. food, along with the Federal Reserve’s cheap money policies, continue to boost farm income and support higher prices for agricultural land and increasing sales of farm equipment,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

This month, bank CEOs were asked about the trend in the financing of farmland over the past year More than one-third, or 34 percent, indicated the percentage of farmland sales financed has declined over the past year; only 11 percent reported that the percentage had increased over the past 12 months. “Very strong farm income has allowed farmers to pay cash for their farmland purchases,” said Goss.

This month, bankers were also asked about the percentage of crop planting that had been completed in the area. On average bankers across the region reported that 64.5 percent of the crop planting had been completed by the mid-May.

Bryan Grove, CEO of American State Bank in Grygla, Minn., summarized what many bankers reported for the month, “Farmers in our area have had a nice spring. Small grains are all in and look great. Soybean planting is going well and should be wrapped up within a week.”

Banking: Farmers increased their demand for loans with the loan-volume index climbing to 56.9 from April’s 52.8. This marks the third consecutive month the index has risen. The checking-deposit index sank to a still healthy 62.9 from April’s 72.6, while the index for certificates of deposit and other savings instruments slumped to 41.7 from 53.5 in April.

For May, bank CEOs were asked to report their loan-to-deposit ratios. On average, bankers reported a loan-to-deposit ratio of approximately 64 percent ($0.64 of loans for every $1.00 of deposits). More than one fourth, or 26 percent, indicated that their ratios were at a record low, while another 41 percent said their banks’ loan-to-deposit ratios were the lowest since the beginning of the recession.

This month, there was much discussion on JP Morgan’s recently announced loan losses. For example, Larry Winum, president of Glenwood State Bank in Glenwood, Iowa said, “As former Kansas City Fed Chairman Tom Hoenig and others have been saying, these ‘too-big-to-fail institutions need to be downsized to a level where they are no longer a systemic risk to our economy. When are we going to learn?”

Hiring: May’s hiring index dipped slightly to a strong 59.2 from 59.3 in April. “Job growth across the Rural Mainstreet economy is showing a lot of variation with areas with significant energy exposure performing much better than more agriculturally dependent areas. For example, rural areas of Colorado and North Dakota experienced much better job growth than Missouri and Nebraska,” said Goss.

Confidence: The economic-confidence index, which reflects expectations for the economy six months out, dipped to 60.2 from April’s 60.6. “Even with the negatives coming out of Europe and U.S. economic questions surfacing, Rural Mainstreet bankers remain very optimistic about the economic future of their local economies,” said Goss.

Home and retail sales: For only the fourth time since July 2011, the Rural Mainstreet home-sales index climbed above growth neutral with May’s record-high reading of 65.2 from April’s 60.8. The retail-sales index for May expanded to 54.7 from April’s 52.9. “Once again, bankers in some areas of the region such as North Dakota and Wyoming are reporting quick turnover of houses on the market and a shortage of housing,” said Goss.

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.

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 17th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above growth neutral. The index for May declined to a still strong 65.2 from 70.0 in April. The farmland and ranchland price index bounced to 77.9 from April’s 70.0. Colorado’s hiring index for May was 65.3, up from 63.9 in April. Very timely rains have helped the grass and winter wheat. According to Mike Bass, CEO of First National Bank of Hugo, “Because of the warmer-than-normal winter/spring, crops are weeks ahead (of normal), so we are expecting an early harvest.”

Illinois: The RMI for Illinois remained above growth neutral for the 25th consecutive month. The May RMI slipped to 50.4 from 51.8 in April. Farmland prices remained above growth neutral with a reading of 56.0, but they down from April’s 59.0. The state’s new-hiring index dipped to 50.6 from 53.4 in April.

Iowa: Iowa’s May RMI advanced to 60.2 from 58.3 in April. The farmland price index increased to a strong 68.7 from April’s 65.1. Iowa’s new-hiring index for May rose to 59.1 from April’s 57.4. According to Charles Helscher, president of Farmers Savings Bank in Keota, “Corn is about 70 percent in but some of the early planted (corn) will need to be replanted due to washout from heavy rains. Beans are just getting started, but favorable weather is forecast and we could be done (planting) in 10 days or so, if there are no more rain delays.”

Kansas: The Kansas RMI for May roared to 62.1 from April’s weak49.1. The farmland price index climbed to 70.9 from April’s 65.0. The state’s new-hiring index rose to 60.5 from 57.4 in April. Dale Bradley, CEO of Citizens State Bank in Miltonvale said, “Crops at this point are excellent in our area, but we are beginning to dry out and need rain soon. The overall economy is still very fragile.”

Minnesota: The May RMI for Minnesota slipped to 59.8 from April’s 63.1. Minnesota’s farmland price index declined to 71.6 from April’s 75.4. Minnesota’s new-hiring index dipped to 60.5 from April’s 61.5. According to Pete Haddeland, CEO of First National Bank in Mahnomen, “Almost all crops are in, but some beans are yet to be planted. Land sales are still strong.”

Missouri: The RMI for Missouri expanded to a tepid 51.8 from April’s 50.9. The farmland price index for April grew to 52.5 from 51.6 in April. Missouri’s new-hiring index rose to 52.3 from 49.5 in April.

Nebraska: Growth in the state’s rural economy, while still positive, continues to weaken. The May RMI for Nebraska slipped to 50.1 from 52.2 in April. The farmland price index slipped to 54.2 from 54.9 in April. Nebraska’s new-hiring index slumped to 49.4 from April’s 50.7.

North Dakota: The North Dakota RMI for May climbed to 91.5 from 91.2 in April. The farmland price index slipped to 88.5 from 93.2 in April. North Dakota’s new-hiring index soared to 92.2 from 84.3 in April. North Dakota is benefiting from very positive farm income and record income from energy production.

South Dakota: The May RMI for South Dakota declined to growth-neutral 50.0 from 51.3 in April. The farmland price index dipped to 57.2 from 57.4 in April. South Dakota's new-hiring index for May sank to 51.4 from April’s 52.3.

Wyoming: The May RMI for Wyoming slumped to 52.3 from 54.5 in April. The May farmland and ranchland price index expanded to 58.8 from April’s 53.6. Wyoming’s new-hiring index sank to 52.5 from 53.6 in April.