Rural Mainstreet Index Highest Level Since 2007

Rural Mainstreet Index Highest Level Since 2007

Land prices climb; solid financial footing keeps farm equipment sales strong

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 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," Goss said.

Land prices climb; solid financial footing keeps farm equipment sales strong

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," Goss said.

"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.

Equipment, Livestock

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.

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.

Goss noted that bank CEOs are reporting significant increases in borrowing to purchase farmland and farm equipment.

TAG Bill

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 transaction account guarantee two-year extension bill (S.3637), introduced this month by Senate Majority Leader Harry Reid, D-Nev.

The TAG program federally insures non-interest bearing transaction accounts, commonly used by small businesses and farmers. Conversely, many farm groups and the Independent Community Bankers of America support the extension.

"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," Winum noted.

For a summary of conditions in specific regions, click here.

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