Mainstreet Economy

SURVEY RESULTS AT A GLANCE:

Rural Mainstreet Index Declines for April:
Farmland Price Growth Slows

• Rural Mainstreet Index dips to a still strong level.
• Rural home sales expand at a record pace in May.
• Farmland prices continue to grow but at a slower pace.
• Approximately one-fourth of bank CEOs report record-low, loan-to-deposit ratios.
• More than one-third of bankers indicate the percentage of farmland purchases financed has declined over the past year with only one in 10 reporting an increase.

For Immediate Release:  May 17, 2012
OMAHA, Neb. –The Rural Mainstreet Index (RMI) for May climbed to very healthy level for May. 

Overall:  The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, rose to 58.5 from April’s healthy 57.1. As indicated by Jeff Bonnett, president of Havana National Bank in Havana, Illinois, “Our bank is encouraged with the ag(riculture) environment at this time” with early planting and great early growing conditions.

Creighton University economist Ernie Goss said, “Even though downturns in energy prices are a positive for the Rural Mainstreet economy, I expect softer agricultural commodity prices and slower global economic growth to restrain growth in the months ahead.” 

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

Farming:  Farmland prices continue to head higher, according to bankers surveyed.  However, for a second straight month, farmland price growth softened with the May index dipping to 64.6 from April’s healthy 69.4 and March’s robust 78.7.  This is the 28th consecutive month the index has been above growth neutral.
The farm-equipment sales index rose to 65.1 from 62.4 in April. “Economic growth among countries importing U.S. food, along with the Federal Reserve’s cheap money policies, continue to boost farm income and support higher prices for agricultural land and increasing sales of farm equipment,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton. 

This month, bank CEOs were asked about the trend in the financing of farmland over the past year More than one-third, or 34 percent, indicated the percentage of farmland sales financed has declined over the past year; only 11 percent reported that the percentage had increased over the past 12 months.  “Very strong farm income has allowed farmers to pay cash for their farmland purchases,” said Goss.  

This month, bankers were also asked about the percentage of crop planting that had been completed in the area.  On average bankers across the region reported that 64.5 percent of the crop planting had been completed by the mid-May.   

Bryan Grove, CEO of American State Bank in Grygla, Minn., summarized what many bankers reported for the month, “Farmers in our area have had a nice spring. Small grains are all in and look great. Soybean planting is going well and should be wrapped up within a week.”

Banking:  Farmers increased their demand for loans with the loan-volume index climbing to 56.9 from April’s 52.8.  This marks the third consecutive month the index has risen.  The checking-deposit index sank to a still healthy 62.9 from April’s 72.6, while the index for certificates of deposit and other savings instruments slumped to 41.7 from 53.5 in April.  

For May, bank CEOs were asked to report their loan-to-deposit ratios.  On average, bankers reported a loan-to-deposit ratio of approximately 64 percent ($0.64 of loans for every $1.00 of deposits).   More than one fourth, or 26 percent, indicated that their ratios were at a record low, while another 41 percent said their banks’ loan-to-deposit ratios were the lowest since the beginning of the recession.