Weaker global economy hurting net farm income, sales of farm equipment

The Associated Press

A monthly survey of rural bankers suggests that, thanks to the weaker market for farm products, the economy was still ailing in a region of 11 Midwest and Plains states.

The Rural Mainstreet Index dropped to 32.6 in July, down from 34.0 in June and 36.2 in May.

The report issued Friday said the figures were significantly higher than the index's record low of 16.9 in February.

A reading of 50.0 is considered growth neutral.

Creighton University economist Ernie Goss, who oversees the survey, said the gauge of overall economic activity seemed to bottom out earlier in the year but is now trending downward.

Goss and Bill McQuillan, CEO of City National Bank in Greeley, Neb., created the survey, which covers Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.

The survey's confidence index, which reflects what the bankers expect six months from now, dropped below growth neutral: to 44.6 in July from 52.2 in June and 56.0 in May.

Farm economists have said the weaker global economy has hurt net farm income, which in turn has hurt sales of farm equipment and land.

Goss said the July survey asked bankers what they expected in 2009 crop income.

"Only 6.3 percent of the bankers forecast an increase in farm income over 2008 levels," Goss said. "Fully one-third expect crop income in 2009 to be lower than 2008."

Some bankers suggested that the problem with farm income is prices, not production.

"It appears that yields will be 10, 15 percent higher than last year; however, prices will be down close to 25 percent," said Bradley Robson, CEO of First State Bank in Belmond, Iowa.

Joe Kennedy, CEO of First National Bank in Frankfort, Kan. was optimistic.

"We have had very good rains in the past 10 days or so. The crop yields should be better than the past three years," he said.

The index for rural hiring remained low in July, hitting 25.0, which was 4 percentage points under the 29.0 in June.

It was the 19th month in a row that the new-hiring index was under growth neutral. In the survey report, Goss blamed that weakness in part on the national and global recession and weaker farm and energy commodity prices.

"Over the past 12 months, rural areas of the region have lost almost 5 percent of their jobs. July's survey indicates that these job losses are likely to continue in the months ahead," Goss said.

July's retail-sales index of 29.5 compared unfavorably with June's anemic 33.7, and for a second straight month, the home-sales index dropped. It hit 40.0 in July, compared with 45.9 in June and 48.7 in May.

"Real estate is selling very slowly," said Pete Haddeland, CEO of First National Bank in Mahnomen, Minn.

But Ken Walsh, CEO of Ruby Valley Bank in Twin Bridges, Mont., said real estate agents are telling him "that the inquiries have picked up recently, so maybe the transactions will be forthcoming."

Also in July's survey, bankers were asked about the effect of the federal stimulus package.

None of the bankers reported a large and meaningful impact; 37.5 percent said the impact was nil; 62.5 percent said the impact was "very little or small."

Almost 200 communities are represented in the survey, with the average community's population about 1,300.