- Rural economy growing for second straight month.
- Farmland price index still below growth neutral.
- Bankers believe breakeven price for corn is $4.30.
The rural economy has been growing for two straight months after falling below growth neutral in February. Uncertainty over when the Federal Reserve will increase interest rates has attributed to the decline of farmland values and equipment sales, which declined to their lowest levels since 2009.
The Rural Mainstreet Index (RMI), ranging between 0 and 100 with 50.0 representing growth neutral, increased to 53.2 from a 50.1 in March. After falling below growth neutral in February, the RMI has recovered well increasing 4.8 points, raising the index above growth neutral and back to levels seen in early 2013.
Ernie Goss, an economist at Creighton University stated,
The overall index for the Rural Mainstreet Economy indicates that the areas of the nation highly dependent on agriculture and energy are experiencing much slower growth than for the same period in 2013. However, recent boosts to agriculture commodity prices should boost the economy in the months ahead.
The farmland price index increased to 42.9 from 40.9. This is the first increase since November 2013, stemming four months of decline. Goss was less than positive about the outlook stating, "This is the fifth straight month that the farmland and ranchland-price index has moved below growth neutral. With the Federal Reserve continuing to withdraw its economic stimulus, I expect rising interest rates to put even more downward pressures on farmland prices and cash rents." Goss continues to suggest that the tapering of the economic stimulus is the main reason for the shrinking farmland price index, despite the above average land prices being paid at farmland auctions across much of the Corn Belt for the past several months.
The farm equipment sales index also rose for the first time since November 2013 increasing to 36.7 from 29.3. Goss said,
Agriculture equipment and implement dealers in the agriculture based areas are experiencing very weak sales to farmers in the region even as farm equipment manufacturers are experiencing positive growth due to healthy sales abroad.
Bankers were asked what the biggest challenge facing farmers for this year's planting season as well as the expected breakeven price for farmers planting corn this year. Of the challenges suggested by bankers, four garnered over 95% of the vote, these included: low agricultural prices, lack of adequate moisture, high input prices, and high cash rents. The average break-even price given by rural bank CEOs was $4.30 down $0.54 from the 2013 estimate. Over 65% of bankers are confident the break-even price will be below $4.50.
This survey represents an early snapshot of the economy of rural, agricultural and energy-dependent portions of the nation. The RMI is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.