Rural Mainstreet Index Remains Weak for January:
Cash Farmland Rents Expected to Fall by 16 Percent in 2015
January Survey Results at a Glance:
- The Rural Mainstreet Index advanced slightly for January, indicating tepid growth in the regional economy.
- Farmland prices sank for the 14th straight month.
- Bankers expect 2015 cash rents to decline to $214 from last year’s $254.
- Approximately 71 percent of bankers reported that lower oil prices have not affected ethanol production in their area.
- One half of bank CEOS reported that rising regulatory costs represent the biggest threat to their banks in 2015.
For Immediate Release: January 15, 2015
OMAHA, Neb. – The Creighton University Rural Mainstreet Index for January rose slightly from December’s weak reading according to the monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.
Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, was 50.9 in January, up from December’s 50.0.
“Lower energy and grain prices along with weaker exports, continue to restrain growth in the rural economy,” said Ernie Goss, Ph.D., Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.
According to Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., “Lower gas prices are having a positive effect.”
Lower corn and fuel prices have yet to impact ethanol producers according to bank CEOs. More than 71 percent reported no change in production for ethanol firms in their area. Only 14.4 percent indicated reduced ethanol production while 14 percent indicated ethanol production was higher for local ethanol firms.
Farming and ranching: The farmland and ranchland-price index for January advanced to a weak 39.4 from December’s 38.6. “Much weaker crop prices continue to take air out of the bubble in agricultural land prices. This is the 14th straight month the index has moved below growth neutral,” said Goss.
On average, bank CEOs expect 2015 cash rents for farmland to decline to $214 per acre, down significantly from last year’s $254.
James Brown, CEO of Hardin County Savings Bank in Eldora, Iowa, said, “Cash rents are down $25 to $50 per acre in some cases, but many are closer to what they were last year. If commodity prices stay in this range there will be more significant decreases next year.”
The January farm-equipment sales index expanded to 29.5 from 23.7 in December. The index has been below growth neutral for 18 straight months. “Farmers have become very cautious regarding equipment purchases even though they have not changed their spending on seed and chemicals,” said Goss.
On the other hand, Jim Ashworth, president of Carlinville National Bank in Carlinville, Ill said, “As usual, following a successful growing season, many grain producers have made year-end equipment purchases as a tax management strategy.”
Banking: The January loan-volume index declined to 62.1 from December’s 76.7. The checking-deposit index expanded to 64.8 from December’s 62.1, while the index for certificates of deposit and other savings instruments fell to a very weak 42.6 from last month’s 44.0.
This month bank executives were asked to name their biggest economic challenge for 2015. “Half of the bankers identified rising regulatory costs as the greatest economic challenge for the year. Approximately, 22.2 percent, 16.7 percent, and 3.7 percent indicated that growing competition, low loan demand and rising loan default, respectively, represented the biggest risk or challenge for 2015,” said Goss.
Hiring: Despite weaker crop prices and pullbacks from businesses with close ties to agriculture and energy, rural Mainstreet businesses continue to add workers to their payrolls. The January hiring index slipped to 52.8 from December’s 55.2. “Businesses on Rural Mainstreet continue to add jobs at a positive pace even with the weaker agriculture conditions and lower energy prices. Year-over-year job growth for the region is now approximately 1.4 percent, which is down from 1.8 percent recorded last month, but still well above the historic average,” said Goss.
Confidence: The confidence index, which reflects expectations for the economy six months out, advanced slightly to 43.6 from 42.5 in December. “Much weaker crop prices and declines in energy prices have negatively affected the outlook of bank CEOs in energy and agriculture dependent portions of the region,” reported Goss.
Home and retail sales: The January home-sales index sank to 45.3 from December’s 51.7. The January retail-sales index slumped to 43.6 from 55.3 in December.
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