Falling grain prices pull at rural economic growth

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Lower corn values spurred by increased production numbers are affecting rural economies as subtle growth continues, but retail business and hiring retract.

A survey of bank CEOs across a 10-state area shows the Rural Economic Index remained steady with the previous month at 54.3. The monthly index is only 4.3 points above growth neutral and 3.2 points below the index from a year ago.

Results show month-to-month increases in farmland prices and farm equipment sales, with the farmland-price index advancing for only the second time in the past 12 months. Farm equipment sales increased by 2.7 points to 47.3, showing losses are slowing, however this month’s index figure is much lower than the 60.4 recorded a year earlier.

The long-term outlook for farmland price growth is expected to slow and potentially decline over the next year.

“Despite the expansion in the index for the month, I expect farmland prices to grow at significantly slower rates for the first six months of 2014 than they did for the same period in 2013. In the November survey almost half, 49.1 percent, bankers indicated they expect farmland prices to decline by an average of 1 percent over the next 12 months,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.

The November hiring index shows growth is slowing as the index fell 1.7 points from a month earlier, but remains 1.4 points above this time last year.

Results from the survey reveal bankers still expect the rural economy to decline, but at a slower rate than a month earlier. The confidence index increased from 44.7 to 48.3 in November, showing rural bank CEOs still expect a decline in the rural economy six months from now, but at a slower rate than previously thought.

“The lack of a farm bill, lower agriculture commodity prices and the EPA’s proposed changes in the mandated ethanol blending level weighed on bankers’ economic outlook,” said Goss.

The survey includes 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. An index of 50 is neutral. Higher numbers show expansion, and lower numbers show decline. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

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Bob Sunderman    
Norwalk, Ohio  |  November, 28, 2013 at 09:13 AM

Balanced growth is what sustains us in the long run. Balance between the grain producer and the livestock and ethanol producers that allow a reasonable profit for all parties. It should also provide some balance to the export market. We all knew that extremely high grain prices would not be sustainable in the long run. Net farm income for 2012 was the highest since 1973 when adjusted for inflation. Did anyone really think we could sustain these prices forever? Lets just hope that the pendulum does not swing too much toward low prices, and a repeat of the farm crisis of the late 1970's. This time, the majority of producers have used a balanced approach to purchasing land and machinery, establishing land rent values, and making improvements keeping their balance sheet and future earnings in mind. We undoubtedly will see a dip in profitability, but producers who used common sense should be just fine.

HARDIN COUNTY, IOWA  |  December, 04, 2013 at 01:52 PM

In reading the well-written Brett Wessler article; the economics of the rural community has been defined using the survey of bank CEOs, which I often do not agree. Wessler also quotes Ernie Goss on the current status of agronomics and the farm bill. Goss is very learnedly blunt and accurate as to the expectation for continued increases in values cannot be infinite. Goss said: “The lack of a farm bill, lower agriculture commodity prices and the EPA’s proposed changes in the mandated ethanol blending level weighed on bankers’ economic outlook,” This insight is much like what Bob Sunderman has extrapolated in his comment to the Wessler article: “. We undoubtedly will see a dip in profitability, but producers who used common sense should be just fine.” In the balance to the agronomics and the short-term future, we need to realize those balances Sunderman addresses and balance the expenditures on capital assets and operational needs. The rural economy will likely remain stable with moderating prices; remembering the economy is global for all segments, and development efforts for our commodities must be continued by our ag-leaders.

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