Rural Mainstreet economic index falls in March
By Larry Dreiling
After moving below growth neutral for February, the Rural Mainstreet economy rose slightly above 50.0, according to the March survey of bank CEOs in a 10-state area, according to the index’s developer, Ernie Goss, Ph.D., the Jack A. MacAllister Chair in Regional Economics at the Creighton University Heider College of Business in Omaha, Neb.
The Rural Mainstreet Index, which ranges between 0 and 100, with 50.0 representing growth neutral, increased to 50.1 from 48.4 in February.
“The overall index for the Rural Mainstreet economy indicates that the areas of the nation highly dependent on agriculture and energy experiencing slow, to no growth over recent months,” Goss said. “Slight upturns in agriculture commodity prices over the past several months have yet to boost the Rural Mainstreet economy.
“We will need to see additional increases in farm commodity prices to push the agriculture-based economy back into healthy growth territory such as was experienced in 2012 and early 2013.”
The market had yield reductions due to drought in 2013 and that has had some bearing on local conditions, according to Scott Tweksbury, president of Heartland State Bank in Edgeley, N.D.
“Livestock producers, cow-calf in particular, are generally enjoying record profits offsetting reductions in crop farming income, ” Tweksbury said.
Farming and ranching
The farmland and ranchland-price index for March sank to 40.9, its lowest level since March 2009, and down from February’s very weak 41.7.
“This is the fourth straight month that the farmland and ranchland-price index has moved below growth neutral,” Goss said.
Farm equipment sales remained below growth neutral for the ninth straight month. The March index sank to a weak 29.3, its lowest reading since May 2009, and down from 30.9 last month.
“Agriculture equipment and implement dealers in the agriculture-based areas of the region are experiencing very weak sales to farmers even as farm equipment manufacturers are experiencing positive growth due to healthy sales abroad,” Goss said.
Bankers were asked the current value of annual cash rents for farmland in their area and how much they expected values to change over the next 12 months. A regional average of $258 per acre was recorded with growth of only 0.6 percent expected over the next 12 months. More than one-third of the bankers, or 35.8 percent, expected cash rents to decline over the course of the next year.
“Last March when we asked this same question, bankers anticipated that cash rents would rise by 9.3 percent over the next year. This is a significant deterioration in the outlook for cash rents from this time last year,” Goss said.
“With the Federal Reserve continuing to withdraw their economic stimulus, I expect rising interest rates to put even more downward pressures on farmland prices and cash rents,” Goss said.
Added Tweksbury, “We are seeing renters requesting reductions from landlords but few landlords agreeing. I think little will change for 2014 but if commodity prices remain unchanged then some reductions (are) likely for 2015.”
The loan-volume index advanced to a robust 65.5 from February’s 50.0. The checking-deposit index expanded to 65.5 from February’s 61.7, while the index for certificates of deposit and other savings instruments was unchanged from February’s 42.5.
Bankers were also asked to report factors restraining loan demand for their banks. More than one-third, or 34.7 percent, indicated that loan demand was normal and with lending advancing as usual.
However, 44.9 percent reported that lack of demand from borrowers was limiting lending. More than 10 percent detailed lending pullbacks due to poor credit quality of applicants. Additionally 10.2 percent of bankers reported that banking regulations were restricting bank loans.
“Strong (farm) profits over the past few years and excellent working capital positions (of farmers) limit operating loan demand from existing customers,” said Bryan Grove, chief executive officer of American State Bank in Grygla, Minn.
Furthermore, Grove said his bank has plenty of liquidity but demand is soft and 2014 projections show tighter cash flows for farmers.
Rural Mainstreet businesses continue to hire at a solid pace. The March hiring index advanced to 60.0 from 54.3 in February.
“While the farm economy slows, businesses on Rural Mainstreet continue to expand their payrolls,” Goss said.
The confidence index, which reflects expectations for the economy six months out, fell to 47.3 from last month’s 47.4.
“Weaker agriculture commodity prices have not only reduced overall economic activity and farmland prices, they have undermined economic confidence,” Goss said.
Home and retail sales
The March home-sales index declined to 51.8 from February’s 53.4. The March retail-sales index rose to 49.2 from 40.1 in February. “Even though the index remained below growth neutral, weather improvements pushed the index higher from February’s poor reading.” Goss said.
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 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 below growth neutral for February, Colorado’s Rural Mainstreet Index inched above the 50.0 threshold, advancing to 50.9 from 48.6 in February. The farmland and ranchland-price index expanded to 43.8 from February’s 39.2. Colorado’s hiring index for March rose to 61.3 from February’s 51.8.
Iowa—The March RMI for Iowa expanded to 49.8 from February’s 48.4. The farmland-price index for March advanced to 37.6 from February’s 36.3. Iowa’s new-hiring index for March rose to 56.3 from 49.1 in February.
Kansas—The Kansas RMI for March climbed to 50.1 from 49.8 in February. The farmland-price index for March declined to 41.3 from February’s 54.4. The state’s new-hiring index declined to 59.2 from February’s 64.1.
Missouri—The March RMI for Missouri increased slightly to 50.9 from February’s 50.3. The farmland-price index for March slumped to 49.7 from February’s 64.7. Missouri’s new-hiring index decreased to 66.0 from 72.3 in February.
Nebraska—For a second straight month, Nebraska’s Rural Mainstreet Index moved below growth neutral. The index improved slightly to 49.5 from February’s 48.8. The farmland-price index for March plummeted to 27.7 from February’s 42.6. Nebraska’s new-hiring index declined to 48.4 from February’s 52.2.
South Dakota—The March RMI for South Dakota expanded to a weak 49.2 from February’s 48.9. The farmland-price index for March sank to 29.4 from 44.3 in February. South Dakota’s new-hiring index for March fell to 49.7 from February’s 52.5.
Wyoming—The March RMI for Wyoming increased to 49.5 from 48.7 in February. The March farmland and ranchland-price index sank to 33.1 from February’s 37.2. Wyoming’s new-hiring index for March improved to 52.7 from February’s 50.2.
Larry Dreiling can be reached by phone at 785-628-1117 or by email at email@example.com.