Farmland Prices Expected to Decline for 2014
February Survey Results at a Glance:
- Rural Mainstreet Index indicates slight economic downturn for February. Harsh weather was a factor.
- Bank CEOs expect farmland prices to decline by 3.2 percent over the next year.
- Farmland price index sinks to lowest level since September 2009.
- Farm equipment sales index falls to lowest level since May 2009.
The Rural Mainstreet economy moved into negative growth territory according to the February 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, fell to 48.4 from 50.8 in January and December’s much healthier to 56.1.
“The overall index for the Rural Mainstreet Economy indicates that areas of the nation highly dependent on agriculture and energy are losing economic steam. Despite year-over-year declines in agriculture commodity prices, bankers expect even more weakness for 2014. Almost nine of 10, or 89.5 percent, of the bank CEOs consider lower agriculture commodity prices as the biggest threat to the 2014 economy. These softer prices have had, and will likely continue to have, negative impacts on the Rural Mainstreet economy,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University Heider College of Business.
At least a portion of the weaker numbers for February can be attributed to unusually harsh weather. Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., said, “We have seen a slowdown due to the cold winter and high heating costs.”
Farming and ranching: The farmland and ranchland-price index for February decreased to 41.7, its lowest level since September 2009, and down from last month’s 43.8. “This is the third straight month that the farmland and ranchland-price index has moved below growth neutral,” said Goss.
Farm equipment sales remained below growth neutral for the eighth straight month. The February index sank to a weak 30.9, the lowest reading since May 2009, and down from January’s 41.0. “Agriculture equipment manufacturers continue to experience strong sales abroad. However, equipment dealers and farm equipment manufacturers selling domestically are experiencing pullbacks in sales and production,” said Goss.
This month bankers were asked how much they expected farmland prices to change in the next year. On average bankers predicted a decline of 3.2 percent for farmland prices for 2014. “Bankers remain pessimistic in terms of farmland price growth. With the Federal Reserve continuing to withdraw their economic stimulus, rising interest rates are expected to put downward pressures on agriculture commodity prices and farmland prices,” reported Goss.
Larry Winum, CEO of Glenwood State Bank in Glenwood, Iowa, said, “Not surprisingly, the Federal Reserve of Chicago reports that Iowa farmland values declined 1 percent in the fourth quarter of 2013. With commodity prices down, this trend most likely will continue.”
Winum also indicated that with farm income down for 2013, “Some farmers may come up a little short of covering their operating debt, and that will require more scrutiny by farmers and bankers as they plan for operational needs in 2014.”
Banking: The loan-volume index declined to 50.0 from 57.8 in January. The checking-deposit index sank to a still solid 61.7 from January’s 68.2, while the index for certificates of deposit and other savings instruments increased to 42.5 from January’s 41.6.
Hiring: Rural Mainstreet businesses continue to hire. The February hiring index advanced to 54.3 from 53.8 in January. “While the farm economy has clearly slowed, businesses on Rural Mainstreet continue to expand their payrolls,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, fell to 47.4 from 49.2 in January. “The negatives of soft agriculture commodity prices more than offset the positives from passage of the 2014 Farm Bill on the economic outlook,” said Goss.
Home and retail sales: The February home-sales index climbed to 53.4 from January’s weaker 49.3. The February retail-sales index plunged to 40.1 from January’s fragile 46.2. “Bad weather across the region restrained retail sales significantly for the month.” said Goss.
James Shafer, CEO of The First National Bank in Tremont, Ill., reported, “Severe, continuous winter weather has had a negative impact on retail, home sales, and employment.”
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, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.
Colorado: After moving above growth neutral for 16 straight months, Colorado’s Rural Mainstreet Index (RMI) sank below the 50.0 threshold, slipping to 48.6 from January’s 51.0. The farmland and ranchland-price index tumbled to 39.2 from January’s 41.0. Colorado’s hiring index for February rose slightly to 51.8, from January’s 51.4.
Illinois: After moving above growth neutral for 15 straight months, the RMI for Illinois declined below 50.0 for the second straight month. The index decreased to 49.0 from 49.7 in January. The Illinois farmland-price index sank to 29.9 from January’s 31.7. The state’s new-hiring index improved slightly to a still weak 44.5 from 44.0 in January.
Iowa: The February RMI for Iowa declined to 48.4 from January’s 50.8. The farmland-price index for February dipped to 36.3 from January’s 38.1. Iowa’s new-hiring index for February rose to 49.6 from February’s 49.1.
Kansas: The Kansas RMI for February dipped to 49.8 from 52.2 in January. The farmland-price index for February declined to 54.4 from January’s 56.2. The state’s new-hiring index expanded to 64.1 from January’s 63.6.
Minnesota: The February RMI for Minnesota fell to 47.6 from January’s 48.8. Minnesota’s farmland-price index for February was unchanged from January’s 50.6. The new-hiring index rose to 67.2 from 66.7 in January.
Missouri: The February RMI for Missouri slumped to 50.3 from January’s 52.7. The farmland-price index for February declined to 64.7 from 66.5 in January. Missouri’s new-hiring index advanced to 72.3 from 71.8 in January.
Nebraska: After 12 straight months of readings above growth neutral 50.0, Nebraska’s Rural Mainstreet Index sank to 48.8 from January’s 51.2. The farmland-price index for February dipped to 42.6 from 44.4 in January. Nebraska’s new-hiring index declined to 52.2 from January’s 54.1.
North Dakota: The North Dakota RMI for February declined to 54.7 from January’s 57.1. The farmland-price index declined to 63.2 from 66.3 in January. North Dakota’s new-hiring index rose to 71.1 from January’s 65.0.
South Dakota: The February RMI for South Dakota fell to 48.9 from January’s 51.3. The farmland-price index for February sank to 44.3 from 46.1 in January 51.6. South Dakota's new-hiring index for February fell to 52.5 from January’s 55.5.
Wyoming: The February RMI for Wyoming sank to 48.7 from 49.1 in January. The February farmland and ranchland-price index sank to 37.2 from January’s 38.9. Wyoming’s new-hiring index for February improved slightly to 50.2 from January’s 49.8.
Next month’s survey results will be released on the third Thursday of the month, March 20.
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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