Monday, December 31, 2007

No Recession in Sight for Rural Mainstreet Economy: Farm Equipment Sales Soar to Record High

December Survey Results at a Glance:
· Rural economy continues to grow, but at a slower pace.
· Farm equipment sales soar to record high.
· More than one-half of CEOs expect 2008 ethanol job growth to slow from the 2007 pace.
· Higher energy prices helped push the confidence index to its lowest level of the year.

The Rural Mainstreet Index (RMI) increased for a second straight month with little indication of a recession. Even so, economic activity for December of this year remains well below earlier this year and the same time last year.

The overall index advanced to 54.3 from 54.1 in December and 52.1 in October. "A reading of 50.0 is growth neutral, thus December’s index indicates positive, but subdued growth on Rural Mainstreet," said Creighton University economist Ernie Goss. Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the monthly economic survey.

Mainstreet businesses are experiencing benefits from very healthy farm income as the farm-equipment-sales index soared to a record 65.9 from November’s healthy 60.1. “Record farm income for most of Mainstreet is translating into robust farm equipment sales in the region,” said Goss.

As reported by Kathy Thuman, president of Farmers State Bank in Maywood, Nebraska. “As farmers and ranchers go, so goes the bank and Mainstreet. We had a good year in terms of income and growth, and we expect the trend to continue through 2008.”
Paralleling the escalation in farm equipment sales, December’s farmland-price index expanded to 77.3 from November’s vigorous 68.8 and October’s 65.4. According to Dale Torpey president of Federation Bank in Washington, Iowa, “We have had several land sales in our area with a recent sale bringing in $7,975 per acre.”

However concern was raised regarding energy costs. Said John Schmaderer, president of Tri-County Bank in Stuart, NE, “Fuel, fertilizer and rents will be higher again this year. Producers will need a sound crop insurance plan to protect their yields.” As a result, the bankers sizing up the economy six months out were not very optimistic with a December confidence index of 44.5 which was the lowest reading of the year and well down from December of last year.
According to the bankers, job growth remains weak with a December new hiring index of 50.6, up slightly from November’s 50.0 and October’s 49.3. Results from surveys over the past four months indicate that Mainstreet is adding jobs at a pace well below average even with record farm income.

This month, bankers were asked to project ethanol job growth for 2008. Over half, or 55.4 percent, expect 2008 job growth at ethanol plants to be down from 2007 levels. And in terms of consolidations of ethanol companies with only 21.4 percent expecting any significant degree of mergers or consolidation in the industry. Jeffrey Gerhart CEO of First National Bank in Newman Grove, NE stated that, “I am not aware of any impending ethanol plant consolidation in my area for 2008. Most of our area had ethanol plants online in 2007 so I'm not sure of how much job growth there will be in 2008.”

Just as in urban areas, home sales continue to be weak for Rural Mainstreet. The December home-sales index declined for the sixth straight month to 28.0, the lowest reading of the year and down from November’s 29.8 and October’s 30.7. According to Bruce Morgan, Ph.D. CEO of Valley State Bank in Roeland Park, KS, ”Real estate values have not dropped as much as some areas of the country, but inventories of new and resale housing is very high. It will likely take 12-18 months before any substantial turnaround occurs.”

Even with strong farm income, retail sales were a weak 45.6 which was well off the 2006 reading for December of 50.0. “It looks like Christmas sales will be lackluster even for Rural Mainstreet,” said Goss.

Bank indicators were solid for December. Loan volume rose to 52.2 from 48.2 in December. Checking deposits increased for a third consecutive month to 65.0 from 59.5 in November and 56.3 in October. Certificates of deposit and other savings instruments declined to 56.7 from 58.9 in November.

Each month, community bank presidents and CEOs in non-urban, agriculturally 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 average community population size covered by the survey is approximately 1,300.

Below are reports for the separate states.

Colorado: Boosted by growth in mining and natural resources, Colorado’s Rural Mainstreet economy continues to expand at a brisk pace. The state’s index advanced to 64.4 from November’s 59.8 and October’s 57.1. Hiring in rural portions of Colorado was very healthy with a December new hiring index of 59.9, up from 55.3 in November. “Higher energy prices will continue to bolster rural areas in Colorado well into 2008,” said Goss.

Illinois: The Illinois Rural Mainstreet Index moved below growth neutral for a fourth straight month. The index expanded slightly to 48.7 from 48.2 in November. “Even with the slight contraction, farm land prices stood at 69.3 and farm equipment sales were a healthy 58.7,” said Goss.

Iowa: The state’s Rural Mainstreet Index slipped below growth neutral to 48.9, up from 45.8 in November. Furthermore there was concern regarding the economy six months out due to higher energy prices as the Iowa confidence index stood at 40.0. According to Charles Helscher, president of Farmers Savings Bank in Keota, “Some of my customers are concerned that margins will not be as good in 2008 as futures prices would indicate due to the rapid increase in input costs- fertilizer and rent especially.”

Kansas: The Rural Mainstreet Index for Kansas declined slightly to 47.6 from November’s 50.7 and October’s 50.1. Optimism waned as well with a confidence index of 39.0, down from 44.5 for November. As indicated by Bruce Morgan, Ph.D., CEO of Valley State Bank in Roeland Park, “Non-performing real estate loans and higher loan loss provisions are negatively impacting area bank balance sheets and income statements in 2007 but community banks are well capitalized and should weather the storm.” Further accenting the positive, Joe Kennedy, CEO of First National Bank in Frankfort, reported that, “We feel that 2008 should be good as the agriculture economy enhances Mainstreet.”

Minnesota. Minnesota’s Rural Mainstreet Index advanced slightly above growth neutral to 50.6 from 44.5 in November. Home sales stood at a very weak 22.2 even as the farm land price index was a robust 61.3.

Missouri: Missouri recorded the lowest index in the region for December as the Rural Mainstreet Index declined to 38.9 from November’s 41.2 and October’s 40.7. Strong farm income helped bolster the farm equipment sales index to 55.4.

Nebraska: The Nebraska Rural Mainstreet Index declined slightly to 50.8 from 51.1 in November. However, concern was expressed regarding farm input costs for next year. Said Bill McQuillan, CEO of City National Bank in Greeley, “The challenge for producers in 2008 will be to mitigate the 50 percent increase in some input costs and still get a decent return.” Farm land prices were strong from December with an index of 72.3. As reported by John Nelsen, president of First Tier Bank in Holdredge, “Farmland prices are setting records with every auction, and inventories of land for sale are very limited.”

North Dakota: The Rural Mainstreet Index for North Dakota advanced slightly to 53.7 from November’s 53.4 and October’s from 50.8. Strong farm income has meant very healthy growth in farm equipment sales at 66.7 from November’s 61.7 and a farmland price index of 76.4, up sharply from November’s 67.8.

South Dakota: The state’s Rural Mainstreet economy expanded for December with an index of 51.5, which was down from November’s 53.1. Farmland prices continue to grow at a very brisk pace in the state with a December farmland-price index of 73.3, up from 67.5 in November. Strong farm income is also bolstering the farm equipment sales index with a 63.2 reading for December.

Wyoming: As in Colorado, mining and natural resource expansions are propelling Wyoming’s Rural Mainstreet index higher with a December reading of 58.1, second highest in the region. Farm and ranch land expanded at a brisk pace with a December index of 82.7. Reporting on Wyoming’s rural areas, Bob Sutter, vice chair of Hilltop National Bank in Casper said, “Economy continues the same --which is strong. Wyoming has escaped the national problem with residential delinquencies and foreclosures.” Sutter indicated that he expects this strong growth to continue for 2008.

Ernie Goss


Omar Cruz said...

I like this blog is fantastic, is really good written. Congratulation. Do you want to see something more? Read it...:Great investment opportunity in Costa Rica: beach real estate, condo, condos for sale. Visit us for more info at:

Anonymous said...

Good articles , this article make some interesting points.

Farm Equipment information