Bankers Expect Farmland Prices to Decline Next Year
November Survey Results at a Glance:
• Rural Mainstreet Index indicates rural economy continues to grow.
• Bank CEOs expect farmland to decline by an average of 1 percent over the next year.
• Approximately 17.9 percent of bankers expect the Federal Reserve to begin QE3 tapering before the end of the first quarter of 2014.
• Only 13.6 percent of bank CEOs agree with the EPA’s recommended cut in mandated ethanol levels.
• Region adds jobs for the month.
Growth for the Rural Mainstreet economy remains positive according to the November survey of bank CEOs in a 10-state area.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, was unchanged from October’s moderate 54.3. “The overall index for the Rural Mainstreet Economy continues to point to positive, but slow economic growth in the months ahead,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.
Farming: For only the second time in the past 12 months, the farmland-price index advanced. The November index rose to 54.3 from 50.9 in October. “Despite the expansion in the index for the month, I expect farmland prices to grow at significantly slower rates for the first six months of 2014 than they did for the same period in 2013. In the November survey almost half, 49.1 percent, bankers indicated they expect farmland prices to decline by an average of 1 percent over the next 12 months,” said Goss.
Dan Coup, president of the First National Bank in Hope, Kan., said, “Based on sales at recent public auctions, it appears there is a definite weakness in prices (farmland) in some of our market areas. In my opinion due to two factors – declining wheat and corn prices and an increase in farmland acres being offered for sale.”
Bankers were asked for their response to the last week’s recommendation by the Environmental Protection Agency (EPA) to reduce the original 2014 mandated ethanol blend level by 20 percent. According to the November survey results, only 13.6 percent of bankers supported the EPA’s recommendation.
Farm equipment sales remained below growth neutral for the fifth straight month. The November index increased to a weak 47.3 from October’s 44.6. “According to bankers in our survey, farmers continue to reduce their purchases of big ticket items such as farm equipment,” said Goss.
Banking: The loan-volume index remained above growth neutral for the month at 56.9 but well down from October’s 64.7. The checking-deposit index soared to 72.0 from October’s 48.3, while the index for certificates of deposit and other savings instruments rose to a frail 44.8 from October’s 35.4.
Hiring: November’s hiring index sank to 54.4 from October’s 56.1. “Durable-goods manufacturers expanded jobs as nondurable goods producers, including food processors, lost jobs,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, climbed to a weak 48.3 from 44.7 in October. “The lack of a farm bill, lower agriculture commodity prices and the EPA’s proposed changes in the mandated ethanol blending level weighed on bankers’ economic outlook,” said Goss.
Home and retail sales: The November home-sales index declined to a still solid 56.2 from October’s 58.0. The November retail-sales index fell to 47.4 from 52.6 in October. “Much like the national housing market the Rural Mainstreet housing market continues to grow at a solid pace, even with the higher mortgage rates. On the other hand, the weaker retail reading should be a concern for businesses depending heavily on the holiday buying season,” 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. The survey is supported by a grant from Security State Bank in Ansley, Neb.
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. Goss and Bill McQuillan, president of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
Colorado: For the 14th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above 50.0. The November RMI slipped to a healthy 58.8, a regional high, from October’s 59.1. The farmland and ranchland price index expanded to 68.0 from last month’s 65.1. Colorado’s hiring index for November fell to a healthy 63.5 from October’s 65.0.
Illinois: The RMI for Illinois advanced to 54.5 from October’s 54.1. The RMI has remained at or above growth neutral for 14 straight months. Farmland prices rose to 46.0 from 43.1 in October. The state’s new-hiring index declined to 48.8 from 50.4 in October.
Iowa: The November RMI for Iowa fell to 53.9 from October’s 55.3. The farmland-price index for November climbed to 53.5 from October’s 50.6. Iowa’s new-hiring index for November decreased to 53.9 from October’s 55.4. “We are beginning to see some softening in land prices but they are still strong if there are two or more bidders involved,” said James Brown, CEO of Hardin County Savings Bank in Eldora.
Kansas: The Kansas RMI for November climbed to 53.8 from October’s 53.6. The farmland-price index for October advanced to 48.6 from October’s 45.7. The state’s new-hiring index slipped to 50.6 from 52.1 October. Dale Bradley, chairman of the Citizens State Bank in Miltonvale, reported, “Good Fall crops in our area and Kansas overall.”
Minnesota: The November RMI for Minnesota expanded to 53.9 from 53.7 in October. Minnesota’s farmland-price index for November was unchanged from October’s 48.3. The new-hiring index sank from 46.3 in October to November’s 44.7. According to Pete Haddeland, CEO of First National Bank in Mahnomen, “Lower commodity prices will hold down increases in farmland prices.”
Missouri: The November RMI for Missouri climbed to a healthy 58.5 from 55.4 in October. The farmland-price index for November soared to 81.3 from October’s 63.2. Missouri’s new-hiring index dipped to 72.4 from October’s 73.9. Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet Index has been above growth neutral for 10 straight months. The November RMI slipped to 54.8 from 54.9 in October. The farmland-price index for November advanced to 48.3 from October’s 45.5. Nebraska’s new-hiring index stood at 50.4 for November from 51.9 in October.
North Dakota: The North Dakota RMI for November declined to 57.7 from October’s 57.9. The farmland-price index jumped to 70.2 from 45.5 in October. North Dakota’s new-hiring index grew slipped to 65.1 from 66.6 in October.
South Dakota: The November RMI for South Dakota jumped to 55.6 from October’s 48.7. The farmland-price index for the state for November climbed to 52.6 from October’s 49.8. South Dakota's new-hiring index for November expanded to 55.7 from 54.8 in October. According to David Callies, CEO of Miner County Bank in Howard, farmland prices continue to increase though he wondered whether those values could be sustainable, based on production and the volatility of crop prices.
Wyoming: The November RMI for Wyoming was unchanged from October’s 55.1. The November farmland and ranchland price index increased to 46.4 from 43.6 in October. Wyoming’s new-hiring index moved lower to 49.2 from October’s 50.7.