Monday, November 20, 2006

High Ag Commodity Prices Push Economy Forward

* Economies of non-urban portions in nine-state area expanded to highest level since survey began last year.
* Almost 62 percent of bankers report higher agriculture commodity prices providing positive and significant economic benefits to their areas.
* Over 50 percent expect Kinder Morgan’s steep natural gas price increase to have a negative impact on Mainstreet businesses.Loan volumes declined to lowest level since survey began.

The Mainstreet economic index from the November survey of bank CEOs in non-urban, agriculturally dependent portions of a nine-state area advanced to a record level as higher agricultural commodity prices bolstered growth. Each month, community bank presidents and chief executive officers (CEOs) are surveyed regarding current economic conditions in their areas and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

Bank presidents and CEOs in the region reported very strong economic conditions for November with the overall index rising to 60.7, its highest level since beginning the survey in December of last year, and up from October’s healthy 54.4.

Bankers detailed upturns in hiring with a November employment index of 56.1, up from October’s 55.9. Bankers in all states except Kansas reported job gains for November.
The highest prices in 10 years for corn and wheat combined with healthy soybean prices are producing solid gains for businesses on Mainstreet. In the November survey, 61.9 percent of the bankers reported that high agricultural commodity prices were having significant and positive impacts on their economy. “I believe it is a good time to be in the farming and agricultural related business,” said Dale Torpey, president of Federation Bank in Washington, Iowa. “I think the next five years are going to be very good. Corn prices out of the field in our area are around $3.30 per bushel. That is very good for our economy.”

But that’s not the case for everyone in the region. Nancy Baerwald, vice president of Countrybank USA in Cando, N.D., said, “Higher 2006 commodity prices have helped areas that were lucky enough to have harvested a crop but does nothing for the areas that had no crop and some livestock producers have been forced to sell down their herds to survive.” And Charles Helscher, president of Farmers Savings Bank in Keota, Iowa, said that the area still needs some moisture prior to ground freezing to set up next year's growing season.

Job growth has improved among Mainstreet businesses. The November employment index rose to 56.1, its highest level since June and up from October’s 55.9. The construction of ethanol facilities and ethanol production at existing facilities are pushing job growth higher for many communities in the nine-state area.

While the price of natural gas is down from this time last year, businesses in the area are concerned about higher heating bills as we enter the winter season. Kinder Morgan, which supplies natural gas for a significant number of businesses on Mainstreet recently announced a doubling and in some cases quadrupling to the basic charge for natural gas. Almost 53 percent of the bankers reported that this rate hike would negatively affect businesses on Mainstreet.
John Nelson, president First Tier Bank in Holdredge, Neb., said, “Kinder-Morgan's rate increases are ridiculous. The abrupt increases will send end users to seek other sources of energy for existing and future needs. A multi-staged increase of lesser amounts would have received less attention.”

The Fed’s halt in raising interest rates, lower oil prices and improvements in agricultural commodity prices have pushed confidence higher to a healthy reading of 54.8, but down from October’s 61.8. The confidence index tracks bankers’ economic outlook six months out. Strong agricultural commodity prices have made for a healthy market for farmland with a November farm land price index of 70.0, its highest level since February of this year, and up from October’s index of 62.1. “As in past months, rising commodity prices, expansions in ethanol production and increasing non-farm demand are pushing farmland prices higher,” said Goss. Torpey reported that, “Recently two parcels of land totaling over 300 acres sold for around $5,700 an acre on average.”

Retail sales remain weak with a November reading of 46.4, up slightly from October’s 45.6 and September’s retail index of 43.6. Mainstreet retailers continue to be hurt by large retailers in trade centers pulling customers from a wide outlying area. Despite a robust Mainstreet economy, I expect a bland Christmas buying season for retailers across the rural portions of the nine-state region.

Home sales in the non-urban areas plummeted to their lowest level since beginning the survey with a November home sales index of 24.4, down from Octobers 36.4. However all was not bad for housing, according to Todd Douglas, CEO of First National Bank in Ft. Pierre, S.D., “Second home or vacation home sales in the Black Hills continue to be strong, as are land prices.”

To see the full report, go to:

Ernie Goss

No comments: