December Survey Results at a Glance:
• Rural Mainstreet Index indicates rural economy expands at a healthy pace.
• Farmland price index sinks to lowest level in four years.
• Bank CEOs see rising regulatory costs as biggest threat to community banks for 2014.
• Agriculture equipment sales decline for sixth straight month.
• Bankers say low agriculture commodity prices are the biggest risk for the 2014 rural economy.
Growth for the Rural Mainstreet economy climbed, according to the December 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, rose to 56.1 from November’s moderate 54.3.
“The overall index for the Rural Mainstreet Economy continues to indicate that the areas of the nation highly dependent on agriculture and energy continue to expand at a healthy pace. This month we asked bankers to name the biggest threat to the rural economy for 2014. Approximately 80.6 percent named lower agriculture prices to be the greatest economic threat in the next year while 10.6 percent said the Affordable Care Act was the biggest economic challenge for 2014,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.
Farming: The farmland-price index plunged to 47.0, its lowest level since December 2009, and was down from November’s 54.3. “This is the first time in four years that the farmland-price index has moved below growth neutral. As agriculture commodity prices have moved lower, so have farmland prices,” said Goss.
According to David Callies, CEO of Miner County Bank in Howard, S.D., “Continued increases in ag real estate prices and cash rents, along with lower crop prices, are a major concern for community banks.
Farm equipment sales remained below growth neutral for the sixth straight month. The December index sank to a weak 44.3, the lowest reading since August 2012 and down from 47.3 in November. “Over the past year, grain prices have declined by roughly 35 percent. This has significantly reduced farmers’ willingness to purchase agriculture equipment,” said Goss.
Bankers expect 2014 cash rents for non-irrigated crop land to average approximately $252 per acre. “However, 3.2 percent of bankers forecast 2014 cash rents above $500 per acre. Additional declines in agriculture commodity prices will present a real challenge for a significant share of farmers that are cash renting,” said Goss.
Jeff Bonnett, president of Havana National Bank in Havana, Ill., reported, “2014 will be interesting, as input costs have not come down in relation to commodity prices. Fasten your chin straps firmly and hold on, it may be an interesting ride.”
Banking: The loan-volume index climbed to 66.7 from 56.9 in November. The checking-deposit index fell to 66.0 from 72.0 in November, while the index for certificates of deposit and other savings instruments slumped to 37.2 from November’s frail 44.8.
This month bankers were also asked to name the biggest threat facing community banks in 2014. More than half, or 55.9 percent, expect soaring regulatory costs to be the greatest threat to the community banking industry. Another 23.5 percent indicated that low loan demand was the chief challenge to community banks for 2014 while 14.7 percent reported that rising competition from Farm Credit represented the prime threat to community banks. No other issue rose above 10 percent.
Jim Ashworth president of Carlinville National Bank in Carlinville, Ill., said, “Continued low interest rates in a stagnant economy drive competitive pressures among community banks, with net margins continuing to shrink.”
Hiring: December’s hiring index expanded to 56.9 from 54.4 in November. “Rural companies are adding jobs but at a pace below that of their metropolitan counterparts,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, slipped to 47.0 from November’s weak 48.3. “Despite the recent federal budget agreement, the lack of a farm bill and lower agriculture commodity prices pushed economic confidence even lower,” said Goss
Dale Bradley, chairman of the Citizens State Bank in Miltonvale, Kan., reported, “Much will depend on the new (federal) budget and deficits for 2014. Hopefully we will get a good farm bill.”
Home and retail sales: The December home-sales index declined to 53.1 from November’s stronger 56.2. The December retail-sales index improved to 54.7 from 47.4 in November. “Higher mortgage rates cooled the growth for the Rural Mainstreet housing market for December,” said Goss.
According to Michael Flahaven, president of Wenona State Bank in Wenona, “Community banks are being forced out of residential real estate loans. As this happens I expect small banks and their communities to suffer.”
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, president of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.
Colorado: For the 15th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above 50.0. though it slipped to a still solid 55.6 from November’s 58.8. The farmland and ranchland price index expanded to 69.4 from November’s 68.0. Colorado’s hiring index for December fell to a still healthy 58.7 from November’s 63.5.
Illinois: The RMI for Illinois slipped to 54.1 from November’s 54.5. The RMI has remained at or above growth neutral for 15 straight months. The state’s farmland price index rose to a weak 47.3 from 46.0 in November. The state’s new-hiring index expanded to a frail 48.9 from 48.8 in November.
Iowa: The December RMI for Iowa advanced to 55.3 from November’s 53.9. The farmland-price index for December sank to 52.3 from November’s 53.5. Iowa’s new-hiring index for December was unchanged from November’s 53.9.
Kansas: The Kansas RMI for December dipped to 53.6 from November’s 53.8. The farmland-price index for December declined to 48.2 from November’s 48.6. The state’s new-hiring index slipped to 50.2 from 50.6 in November. Dale Bradley, chairman of the Citizens State Bank in Miltonvale, reported, “Good Fall crops in our area and Kansas overall.”
Minnesota: The December RMI for Minnesota fell to 53.6 from 53.9 in November. Minnesota’s farmland-price index for December plunged to 40.9 from November’s 48.3. The new-hiring index sank to 44.7 from November’s 44.7.
Missouri: The December RMI for Missouri climbed to a healthy 59.0 from 58.5 in November. The farmland-price index for December declined to a strong 75.4 from November’s 81.3. Missouri’s new-hiring index advanced to 78.2, up from 72.4 in November.
Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet Index has been above growth neutral for 11 straight months. The December RMI slipped to 54.4 from 54.8 in November. The farmland-price index for December dipped to 48.0 from November’s 48.3. Nebraska’s new-hiring index stood at 50.1, which was down from November’s 50.4.
North Dakota: The North Dakota RMI for December declined to 56.3, down from November’s 57.7. The farmland-price index declined to 66.3 from 70.2 in November. North Dakota’s new-hiring index fell to 61.0 from November’s 65.1.
South Dakota: The December RMI for South Dakota increased to 55.8 from 55.6 in November. The farmland-price index for December sank to 51.6 from 52.6 in November. South Dakota's new-hiring index for December declined to 53.3 from 55.7 in November.
Wyoming: The December RMI for Wyoming sank to 54.5 from November’s 55.1. The December farmland and ranchland price index was unchanged from November’s 46.4. Wyoming’s new-hiring index moved lower to 49.0 from November’s 49.2.