Rural economy slows but remains strong

Ernie Goss

The rural economy is slowing but remains strong as farm prices continue to increase at a historic pace, according to a monthly Creighton University survey. The Rural Mainstreet Index fell from 62 to 57.7 in May, the lowest reading since early 2021, but still remained above growth-neutral for the 18th straight month. 

“Supply chain disruptions from transportation bottlenecks and labor shortages continue to constrain growth,” said Ernie Goss, Jack A. MacAllister chair in regional economics at Creighton University’s Heider College of Business. “Farmers and bankers are bracing for escalating interest rates — both long-term and short-term.”

The farmland price index dropped eight points, to a reading of 72. According to a recent Federal Reserve Bank of Kansas City report, U.S. wheat and corn commodity prices spiked 60 percent and 30 percent, respectively, during the first quarter of this year as Russia’s invasion of Ukraine continued to drive prices higher. Creighton’s farm equipment-sales index remained high this month at 67. Cash rents have jumped by nearly 10 percent to $250 per acre for non-irrigated crop land over the past 12 months. Increasing farm input prices pushed borrowing up to its highest reading since May 2020, according to the report.

The region exported $10.6 billion of farm commodities in 2021, including livestock. Fifty-seven percent of exports were to Mexico. “The depreciation of the U.S. dollar against the Mexican peso has been a stimulus to exports to Mexico,” Goss said. “Healthy farm commodity prices accompanying strong farm income continue to have positive impacts on rural mainstreet retail sales and home sales.”

The loan volume index soared more than 20 points to 73, and the checking-deposit index fell 12 points to 54. The index for certificates of deposits and other savings instruments remained relatively low at 40. According to the report, approximately 40 percent of bankers anticipate farm income will increase this year, while slightly more than one-quarter say income will drop. 

The war in Eastern Europe, along with associated global trade tensions and decades-high inflation readings, kept the business confidence index low at 40.4. Approximately 70 percent of bankers expect the Federal Reserve Open Market Committee to raise interest rates by 50 basis points in June. Significantly fewer expect the Fed to raise interest rates by 75 basis points. 

The RMI, which began in 2006, surveys bank CEOs in approximately 200 rural communities with an average population of 1,300 in Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wyoming.