While farm income appears to be holding strong, businesses linked to agriculture continue to experience pullbacks in economic activity according to the latest survey of bank CEOs reporting for the Rural Mainstreet economy.
The Rural Mainstreet Index, which ranges between 0 and 100 with 50.0 representing growth neutral, was up slightly for September at 48.3, from 47.1 in August and 47.9 in July. However, it was the third straight month the index has been below growth neutral.
Creighton University economist Ernie Goss said, "The drought continues to dampen economic activity for businesses linked to agriculture such as ethanol, and agriculture-equipment sellers. I expect food processors to take a hit later in the year as higher food prices work their way through the system."
After declining for three straight months, the farmland-price index moved higher. The September reading climbed to 61.6, its highest level since May of this year, and up from 52.8 in August. "Bankers in some parts of the region are reporting farmland prices as high as $20,000 per acre. Despite the drought, farmers continue to put more air into the farmland price bubble. This is the 32nd consecutive month that the farmland-price index has risen above growth neutral. The farm-equipment-sales index rose to growth neutral 50.0 from August's very weak 38.3," said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.
This month, bank CEOs were asked to project farmland price growth for the next year. There was a great deal of variation across the 10-state region with an average gain of approximately 3% expected. Areas that suffered the most from the drought were expected to grow the least. Approximately 13% of the bankers expect price declines over the next year. This is up from 9% this time last when we asked the same question.
This year bankers expect harvesting to occur much earlier than normal. Only 9% anticipate a normal harvest time while 48% expect harvesting to occur one to two weeks early and the remaining 58% of bankers anticipating harvesting to take place three to four weeks ahead of schedule.
Pete Haddeland, CEO of First National Bank in Mahnomen, Minn., reported the harvest in his area is a month early but yields are great. He expects a record sugar beet harvest. Likewise, Jon Schmaderer, president of Tri-County Bank in Stuart, Neb., indicated that initial yields on irrigated land look promising.
Farmers increased their demand for loans with the loan-volume index climbing to 70.2 from 67.6 in August. This marks the seventh consecutive month the index has risen. The checking-deposit index weakened to 48.3 from 49.1 in August, while the index for certificates of deposit and other savings instruments rose to an anemic 38.4 from 33.0 in August. "As in previous months, the drought appears to be increasing the cash needs of farmers in the region. We have been tracking a reduction in the% of farmland and farm-equipment cash sales and upturns in the degree of bank financing," said Goss.
This month bankers were asked about the impact or expected impact of the implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act on their bank's costs. Bank CEO's, on average, expect their bank's costs to grow by approximately 9% as a result of Dodd-Frank. Roughly 6% anticipate an increase of more than 15%, 36% expect an expansion of 10% to 15% with the remaining 58% forecasting an upturn of 2% to 9% resulting from the implementation of Dodd-Frank.
Michael Flahaven, president of Wenona State Bank in Wenona, Ill., expects QE3, along with current low loan demand and low interest rates into 2015 to "kill" small community banks.
September's hiring index declined to 50.9 from 51.9 in August. "Even though we tracked hiring growth for the month, the index is trending down. I expect job losses in the months ahead as the impacts of the drought spread to more and more Rural Mainstreet businesses," said Goss.
The confidence index, which reflects expectations for the economy six months out, increased to a frail 43.0 from August's 39.6 and well down from June's much stronger 58.5. "The drought along with a lethargic national economy are negatively affecting the business confidence of bank CEOs in the region," said Goss.
The September home-sales index slipped to a solid 58.8 from 60.2 in August. "As in the national economy, the Rural Mainstreet housing market is improving," 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 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.
See more detailed results here.