Thursday, July 18, 2013

Rural Mainstreet Economy Grows: Bankers Say Farm Bill Passage Important

July Survey Results at a Glance:
• Rural Mainstreet Index indicates rural economy expansion continues at healthy pace.
• On average, bankers expect farm income this year to be down by 3 percent from last year.
• More than one-third of bankers report impacts from federal spending sequestration.
• More than three fourths of bankers consider passage of a new farm bill as very important to the Rural Mainstreet economy.
• Farmland price growth slowed for the seventh time in past eight months.

While growth for the Rural Mainstreet economy remains healthy, it slowed a bit in July, according to the monthly 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, slipped to 57.3 from June’s 60.5, but was well ahead of last July’s 47.3.

“Last year at this time, the drought was having a significant negative impact on the Rural Mainstreet economy. This year, ample moisture has boosted the rural economy and the banker’s economic outlook,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.

Additionally, energy production has taken on an increasingly important role for the rural economy. As reported by Jim Stanosheck, CEO of State Bank of Odell in Odell, Neb., “The area has about 45 wind generators being built in the next six months. This activity should spur the rural economy for next six to seven months.”

Farming: The farmland-price index declined for the seventh time in eight months. The July index fell to 58.2 from June’s 58.4. “Our farmland-price index has been above growth neutral since February 2010. However, lower farm commodity prices and expected declines in farm income are slowing growth in farmland prices. I expect farmland price growth to continue to weaken as a stronger U.S. dollar weighs on agriculture commodity prices,” said Goss.

This month bankers were asked to project farm income for 2013. On average, bankers expect farm income to be down by 3 percent from 2012. Approximately 59.6 percent of bank CEOs expect farm income to be down from 2012, while only 19.5 percent anticipate an increase in farm income and the remaining 20.9 percent expected no change.

Farm equipment sales also softened for July, with an index of 50.0, down from June’s 53.2. “Farmers are getting increasingly cautious regarding economic conditions. This has been reflected in declines in our equipment-sales index and in the stock prices of agriculture equipment producers,” reported Goss.

Banking: The loan-volume index moved above growth neutral for the month. The index soared to 75.7 from June’s 66.7. The checking-deposit index advanced to 53.7 from June’s 48.5, while the index for certificates of deposit and other savings instruments increased to a very weak 42.0 from 33.6 in June.

Community bankers are more upbeat that Congress will address the increasing concentration of U.S. banking. As reported by Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., “TBTF (too big to fail) is gaining some traction (in D.C.).”

This month bankers were also asked about the impacts of the federal spending sequester. Only 1.5 percent reported significant impacts, while 34.3 percent indicated moderate impacts with the remaining 64.2 percent detailing no impacts from the spending sequestration.

Hiring: July’s hiring index declined to a strong 60.7 from June’s 61.4. “Readings over the past several months are consistent with an annualized growth rate in jobs of 1 percent. Businesses linked to agriculture and energy continue to add jobs at this slow, but positive pace,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, fell to 56.6 from 60.0 in June. “While healthy crop conditions have fortified the economic outlook, recent weaker than expected agriculture commodity prices have lowered that outlook,” said Goss

“More than three-fourths, or 77.9 percent, of bankers think that Congressional passage of a new farm bill is important or crucial to the Rural Mainstreet economy,” said Goss.

Home and retail sales: The July home-sales index slipped to 76.6 from June’s record high of 78.1. The July retail-sales index slipped to 53.1 from 53.9 in June. “Slightly higher mortgage rates failed to slow the rapidly improving Rural Mainstreet housing sector,” said Goss.

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

Colorado: For a tenth straight month, Colorado’s Rural Mainstreet Index (RMI) remained above 50.0. The July RMI declined to a still robust 70.5 from June’s 81.2. The farmland and ranchland price index declined to a strong 75.5 from June’s 80.3. Colorado’s hiring index for July slipped to 73.0 from June’s 75.7. Bankers reported problems for certain segments of the rural economy. According to Fred Bauer, CEO of Farmers Bank in Ault, “Dairies are still struggling with (high) feed costs.”

Illinois: While the RMI for Illinois declined in July to 57.6 from June’s 61.6, it has remained above growth neutral for 10 straight months. Farmland prices sank to 49.1 from 49.4 in June. The state’s new-hiring index dipped to 54.3 from June’s 55.2.

Iowa: The July RMI for Iowa expanded slightly to 62.3 from June’s 62.2. The farmland-price advanced to 54.6 from 49.6 in June. Iowa’s new-hiring index for July improved to 58.0 from June’s 55.3. As reported by Steven Lane, CEO of Security Savings Bank in Farnhamville, “Most of the crops in our area were planted late. It’s now up to mother nature to see if it amounts to much.”

Kansas: The Kansas RMI for July decreased 59.2 from 60.5 in June. The farmland-price index sank to 46.6 from June’s 49.6. The state’s new-hiring index decreased to 52.7 from 56.7 in June. Bankers in the state remain hopeful, but cautious regarding the farm economy.

Minnesota: The July RMI for Minnesota tumbled to a 53.4 from June’s 59.7. Minnesota’s farmland-price index fell to 51.3 from 58.5 in June. The new-hiring index declined to 55.8 from last month’s 61.2. Pete Haddeland, CEO of the First National Bank in Mahnomen, said, “Our crops look great.”

Missouri: The July RMI for Missouri rocketed to regional high of 81.2 from 59.2 in June. The farmland-price index for July remained strong at 78.9, though it was down from June’s 81.5. Missouri’s new-hiring index rose to 84.2 from June’s 76.7.

Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet index has now moved above growth neutral for six straight months. The July RMI climbed to 58.0 from 56.5 in June. The farmland-price index for July fell to 48.5 from June’s 59.2. Nebraska’s new-hiring index stood at 53.9, down slightly from June’s 53.7. Weather remains a problem for some parts of the state. According to Bill McQuillan, president of CNB Community Bank of Greeley, “Pasture conditions continue to deteriorate because of the lack of moisture in the last 30 days.”

North Dakota: The North Dakota RMI for July dipped to a 78.4 from 81.8 in June. The farmland-price index declined to 82.4 from June’s 87.6. North Dakota’s new-hiring index declined to a still very strong 76.5 from June’s 80.6.

South Dakota: The July RMI for South Dakota slipped to 59.9 from 60.5 in June. The farmland price index slumped to 50.8 from June’s 51.5. South Dakota's new-hiring index for July decreased to 55.5 from June’s 56.5. As in other areas of the region, farm conditions are up significantly from last year. According to David Callies, CEO of Miner County Bank in Howard, “Crops are doing very well.”

Wyoming: The July RMI for Wyoming expanded to 53.0 from 52.6 in June. The July farmland and ranchland price index grew to 41.9 in July from 40.8 in June. Wyoming’s new-hiring index increased to 49.6 from June’s 49.4.

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