Iowa Public Television


Strong Farm Earnings Bolster Rural Economy

posted on December 22, 2010

Hello, I'm Mark Pearson. Wall Street traded this week at levels not seen since September of 2008 as a series of reports revealed an economy in recovery.

In its final revision of previous data, the Commerce Department reports the economy as measured by gross domestic product grew at an annual rate of 2.6 percent between July and September... slightly better than earlier estimates but well below what many analysts had expected.

Nevertheless, orders to U.S. factories for big-ticket durable goods fell 1.3 percent in November as sagging demand for aircraft and autos hampered expansion. However, apart from the volatile transportation sector, orders actually rose 2.4 percent, in their best showing since March.

Meanwhile, the National Association of Realtors announced existing home sales rose 5.6 percent, in November. Nevertheless, 2010 likely will be remembered as the worst year for sales of previously-occupied homes since 1997.

And the Dow Jones Industrials settled at a two-year high Wednesday during an abbreviated trading week as the markets were closed Friday for the Christmas holiday.

Commodity prices also are putting in some lofty highs these days, and new data suggest the economy also is on the mend in rural America.

Strong Farm Earnings Bolster Rural Economy Strong farm earnings continue to bolster the economy in parts of the rural Midwest and Plains, according to a December survey. The Rural Mainstreet Index, or RMI, covers 10 regional states and gives the most current real-time analysis of the rural economy.

Ernie Goss, an economist at Creighton University created the monthly economic survey in 2005. The index focuses on about 200 rural communities with an average population of 1,300.

Each month, Goss' team surveys community bank presidents and CEOs in nonurban, agriculturally -dependent portions of the 10-state area. The executives asses current economic conditions in their communities and project their economic outlook six months down the road.

Ernie Goss, Creighton University economist: "The rural index was up above growth neutral, it was one of the highest numbers we recorded since the recession began."

This month, the RMI expanded to 55.4 up two percent from November. The gain represents a two percent improvement over last December and is the highest reading since January of 2008. The RMI ranges between 0 and 100. Any score above 50 suggests the economic growth over the next six months. Anything below 50 indicates the economy will contract.

The December Jobs index improved to 50.1, up seven percent from November, as employers began to add to their payrolls. Goss said many small towns that depend on agriculture are starting to see job prospects improve even as layoffs continue in many metropolitan areas.

Ernie Goss, Creighton University economist: "Finally we got a cheap dollar. That means it makes US goods competitive abroad, makes them cheaper, for our trading partners, that's a big, factor."

The bankers surveyed remain fairly optimistic about the economy with December's index hitting 62.2. But that's down slightly from November. The survey suggested that loan volume jumped significantly in December as farmers completed land and equipment purchases. The December loan volume index hit 52.3, up nearly 50 percent from November. But home sales in the region remained weak as the December index declined two percent from November.

The farmland price index soared to its highest level since March 2008, moving above growth neutral for the 11th straight month to 76.9.

And the farm equipment sales index also bounced higher, posting a record high of 77.8 in December.

While the agricultural economy seems to be on the mend, Goss suggests farmers and rural bankers remain cautious as they look ahead to 2011 and beyond.

Ernie Goss, Creighton University economist: "I think we've seen the farmland price grow far above what is sustainable. The growth that we're seeing, while that can be sustained with 5 to 6 dollars a bushel, if we saw corn prices dropping to 4 dollars a bushel, then we'll see some of the air come out of that farmland price bubble. That's a real risk factor. Another risk factors is the governments, in other words, if you saw trade embargos, increases in tariffs, into China, for example, when you're dealing in international trade. Trade is very important to the farm economy. You have the risks of trade policy."

Tags: agriculture banks economy news rural