The April edition of the Rural Mainstreet Index dropped somewhat from a healthy reading in March but remained above growth neutral. April’s reading was 62, down from the March index of 65.4. An index reading of 50.0 is growth neutral. Dr. Ernie Goss of Creighton University says the index has been in growth territory for 17 straight months.
“So, the overall reading for the month of April was down for the month but still in pretty good growth territory. The agriculture sector continues to move along, and that’s pulling the rural areas of the states up, still looking pretty good.”
Farmland prices continue to rise at a brisk pace, thanks in large part to strong commodity prices.
“Those prices are pulling up farm income, and farmers are bidding up the price of farmland. That’s what we are seeing; the best numbers since we began the survey in 2006. For example, and this was reported by the Federal Reserve in Chicago, Iowa, and farmland prices grew by 30 percent, year over year. Now, that’s very strong, and that just indicates what we’re seeing in our surveys.”
Rural bankers don’t seem optimistic that the Biden administration’s move to relax summer restrictions on E15 will have a major impact on the ag economy.
“Well, only four of 10 think it will have a positive impact. Obviously, the other six attend either expected a negative impact or no impact. That’s somewhat expected. Although this part of the nation depends heavily on ethanol, in certain parts, particularly in Iowa, Nebraska, South Dakota, and Minnesota, but it’s only for one year, it’s temporary, that’s one factor. And secondly, you’ve got a lot of service stations out there that cannot provide that for their customers, so we still see some impediments to the expansion of ethanol. And, of course, the lack of certainty from the federal government in terms of blending levels with fuel, that also is a real problem and causes uncertainty and lack of any real positive attitude toward this year’s emergency executive order by the President.”
Goss says rural bankers are worried about rising inflation making it more costly to do business.
“Early on, the bankers expected a 50 basis point increase by the Federal Reserve to quell inflationary pressures. That increase will come on May the fourth, so on May the fifth, the prime interest rate will go up by 50 basis points or a half percentage point. That will drive loan costs for farmers out there up higher; those in terms of operating expenses, and this is tacked on to other increases in operating expenses. For example, fertilizer costs, natural gas prices, insecticide prices, so the farmer has experienced some fairly significant upturns in the cost of operations, and that includes interest rates because of the inflationary pressures.”
Bankers appear to be less optimistic about the immediate future.
“Our confidence index, which gauges economic conditions six months out, dropped to its lowest level since the beginning of the pandemic in spring of 2020. Of course, what’s happening there is just the Russian invasion of Ukraine and also what’s going on in China. The lockdowns in China, that’s telegraphed quickly back to this part of the country because of exports. Exports are important to China. This, of course, is not a positive for the outlook for U.S. exports to China, whether it’s soybeans, pork or other products.”