Friday, December 21, 2012

Rural Mainstreet Index Highest Level Since 2007: Ethanol Shutdowns Expected

December Survey Results at a Glance:

· Rural Mainstreet Index climbs for a fourth straight month and is at its highest level since June 2007.

· Almost 25 percent of bankers expect shutdowns and/or temporary closures of ethanol plants in their area.

· On average, bankers report a 15 percent growth in cash rents on farmland over the past 12 months.

· Bank CEOs are reporting significant increases in borrowing to purchase farmland and farm equipment.

For Immediate Release: Dec. 20, 2012

OMAHA, Neb. – For a fourth straight month, the Rural Mainstreet economy expanded according to the December survey of bank CEOs in a 10-state area.

Overall: The Rural Mainstreet Index (RMI), climbed to a healthy 60.6, its highest level since June 2007, and was up from 57.5 in November. The index ranges between 0 and 100 with 50.0 representing growth neutral.

Creighton University economist Ernie Goss said very strong agriculture commodity prices and lower energy prices boosted the Rural Mainstreet business activity for the month. “This is the healthiest reading that we have recorded since well before the national economic recession began in 2007,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

Farming: The farmland-price index continues to show very brisk growth though the December reading dipped slightly to 82.5 from November’s 83.9. This is the 35th consecutive month that the farmland-price index has risen above growth neutral. “The Federal Reserve’s cheap money policy is pushing agriculture land prices higher.

This month bankers were asked how much cash rents for farmland changed over the past 12 months. On average, bankers reported a 15 percent increase in cash rents over the past year,” said Goss.

“As a result of higher corn prices and lower ethanol fuel prices, 23.2 percent of bankers expect shutdowns or temporary closure of ethanol plants in their area. On the other hand, only 3.6 percent of bankers expect an increase in 2013 ethanol revenues from 2012 for ethanol plants in their area,” said Goss.

The farm-equipment-sales index bounced to 67.0 from 60.4 in November. “With solid financial footing, farmers remain optimistic about future agriculture economic conditions and are expanding their purchases of farm equipment,” said Goss.

In order to reduce costs, the 2012 drought and higher corn prices have forced ranchers to cut the size of their animal stocks. On average, the drought forced a 14.8 percent reduction in livestock herds.

Banking: After moving below growth neutral for two straight months, the loan-volume index expanded to 62.1 from November’s weak 47.8 and October’s 44.2. The checking-deposit index advanced to 75.8 from November’s 75.1, while the index for certificates of deposit and other savings instruments declined to 40.2 from 45.5 in November. “Bank CEOs are reporting significant increases in borrowing to purchase farmland and farm equipment,” said Goss.

Like other bankers Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, is very disappointed that Congress has failed to at least agree to vote on the TAG (transaction account guarantee) two-year extension bill (S.3637). Said Winum, “The Senate’s inability to vote on an extension of bank funded FDIC coverage for noninterest-bearing accounts only benefits the large banks and hurts the majority of community banks and their small business customers.”

Hiring: December’s hiring index expanded to 53.5 from 53.0 in November. “Despite recent gains in Rural Mainstreet jobs, the region’s employment level is down by 3 percent from pre-recession levels,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, expanded to 55.5 from November’s much lower 45.6. “Improvements in retail sales, home purchases and lower energy prices boosted banker’s economic outlook,” said Goss.

Home and retail sales: The December home-sales index slipped to a still healthy 61.3 from November’s 62.0. The December retail-sales index soared to 59.0 from November’s 51.5.

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.

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, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

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