The Midwest economy is the healthiest it’s been since before the recession, according to an economic indicator survey of 192 rural bankers.
For December, the Rural Mainstreet Index climbed to 60.6, its highest reading level since June 2007. The index is up from November’s 57.5 and also is the fourth consecutive month of growth.
The index is based on a scale of 0 to 100. An index above 50 indicates growth, and below indicates decline.
Creighton University economist Ernie Goss, who along with Greeley, Neb., banker Bill McQuillan created the survey, said December’s levels were boosted by strong agriculture commodity prices and lower energy prices.
The farmland price index dipped a bit to 82.5 from 83.9 in November, but Goss said it still reflected “very brisk growth.” It was the 35th consecutive month that it had risen above growth neutral.
“The Federal Reserve’s cheap money policy is pushing agriculture land prices higher,” he said, noting that on average bankers reported a 15 percent increase in cash rents during the past year.
Another plus for the farming sector was a jump in the farm equipment sales index to 67 from 60.4. Some ranchers, however, have been forced to cut the size of herds because of the drought and higher corn prices.
“With solid financial footing, farmers remain optimistic about future agriculture economic conditions and are expanding their purchases of farm equipment,” Goss said.
The drought and higher corn prices have also made a significant negative impact on the ethanol industry. The survey showed that 25 percent of bankers expect to see shutdowns and temporary closures of Midwest ethanol plants, Goss said, due to higher corn prices and lower ethanol fuel prices.
“On the other hand,” he said, “only 3.6 percent of bankers expect an increase in 2013 ethanol revenues from 2012 for ethanol plants in their area.”
Nebraska experienced its third consecutive month of growth, though its index dipped to 57.4 from 57.7 in November. Iowa’s index boosted to 63.6 from 61.3 in November.
The new hiring index increased in both states, to 54.2 from 51.3 in Nebraska and to 53.9 from 50.2 in Iowa. And while the farmland price index dipped in Nebraska to 84.6 from 86.2, it rose in Iowa to 84.2 from 80.1.
This month’s survey received 192 responses from bank executives in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota and Wyoming.
Goss said bank CEOs are reporting significant increases in borrowing to purchase farmland and farm equipment. Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, said Congress hasn’t voted on a bill that would extend a transaction account guarantee measure by two years and that isn’t helping the small banking climate, either.
“The Senate’s inability to vote on an extension of bank-funded FDIC coverage for noninterest-bearing accounts only benefits the large banks and hurts the majority of community banks and their small-business customers,” he said.
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