Rural bankers in Iowa, Midwest see modest drought economic impact

Growth in farmland prices, cash rents and farm equipment sales strong

George Ford
Published: January 21 2013 | 11:00 am - Updated: 28 March 2014 | 10:21 am in
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Rural bankers in Iowa and surrounding states expect a modest economic impact from the 2012 drought, according to a survey by Creighton University researchers.

"Despite continuing drought conditions in much of the region, growth in farmland prices, cash rents and farm equipment sales remains strong," said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University in Omaha.

After declining during the summer drought, the Rural Mainstreet economy in January remained above growth neutral for a fourth straight month.

The Rural Mainstreet Index, which ranges between zero and 100 with a reading of 50 representing growth neutral, dipped to a still solid 55.6 for January from December’s healthier 60.6.

Over the past three years the index has averaged 55.8.

"Our survey results indicate that the Rural Mainstreet economy continues to expand at a moderate pace," Goss said. "Rural, agriculturally dependent communities in the region appear to have shed the negative impacts of the 2012 drought."

However, some bankers expect the national economy to weigh on the region.

"A downturn in the overall economy will also affect our farm economy," said Dale Bradley, CEO of Citizens State Bank in Miltonvale, Kan. "I expect both to be negative for 2013."

After rising above 80 for two straight months, the Rural Mainstreet farmland price index slumped to a still healthy 71.5 from December’s 82.5 and November’s 83.9. The farm equipment sales index declined to 63.8 from 67 in December.

"The drought had little impact since most of our crops are irrigated, and farmland that is not irrigated is covered by disaster crop insurance programs," said Jeff Bonnett, president of Havana National Bank in Havana, Ill.

Goss said bankers were asked about the potential impact of continuing drought conditions on the rural economy and their overall response was somewhat surprising.

"Contrary to my expectations, more than 60 percent of bankers anticipate only a moderate negative to no impact if the drought continues for 2013," Goss said.

When asked about sustaining economic damages from a continuation of the drought in 2013, 50.8 percent expect livestock producers would be the most negatively affected. Approximately 38.1 percent of the bankers anticipate that crop farmers will sustain the largest negative impact, but most will have crop insurance coverage that will mitigate any economic losses.

The Rural Mainstreet confidence index, which reflects expectations for the economy six months out, was unchanged from December’s 55.5.

"Bankers are reporting healthy current economic growth and expect this growth to remain strong for the first half of 2013," Goss said. "Banking data appear to indicate that the 2012 drought did not weaken, to any great extent, the financial positions of farms and businesses in the region."

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