Low grain values and farmland prices sliding from record highs clouded the rural economic outlook, then extremely cold weather across the Midwest added a final blow that turned the economy negative.
The February Rural Mainstreet Index signals a downturn in the rural economy, dropping 2.4 points to 48.4 this month. Harsh weather was a primary factor for the dip below growth neutral according to the monthly survey of community bank presidents and CEOs in the 10-state area. One rural banker said the extreme weather caused a slowdown and pushed heating costs higher than anticipated.
Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University Heider College of Business, said survey respondents expect weakness seen this month to continue as the year progresses.
“The overall index for the Rural Mainstreet Economy indicates that areas of the nation highly dependent on agriculture and energy are losing economic steam. Despite year-over-year declines in agriculture commodity prices, bankers expect even more weakness for 2014. Almost nine of 10, or 89.5 percent, of the bank CEOs consider lower agriculture commodity prices as the biggest threat to the 2014 economy. These softer prices have had, and will likely continue to have, negative impacts on the Rural Mainstreet economy,” said Goss.
Although loan volume is higher than index levels from a year ago, other key categories are down. Farmland prices in February fell lower on the index to 41.7. The index reading is 2.1 points lower than a month ago and 25.3 points lower than February 2013.
Farm equipment sales have also experienced a significant decline as grain prices have shifted lower. Equipment sales are well below growth neutral at 30.9. Sales are 10.1 points lower the index reading from a month ago and 64.9 points lower than a year ago.
Hiring remains above 50 this month and increased 0.5 points on the index to 54.3 this month, however the monthly index is 0.6 points below last February’s reading.
The six-month outlook is also lower and remains negative, down 1.8 points from the previous month to 47.4.
The survey was conducted during the government shutdown. 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.