A Bright 2011 Outlook for the Rural Economy

The rural economy grew for the third straight month and advanced to its highest level since 2007, according to the Rural Mainstreet Index. Rising farm income and healthy spending from farmers continues to propel the rural economy.

The overall Rural Mainstreet Index (RMI) increased to 59.3 from 55.4 in December, according to the survey of bank CEOs in a 10-state region. This marks the third straight month the index is above growth neutral 50.0, and the fifth straight month the index has increased.

“Farmers continue to spend their healthy and growing income on rural main Street businesses. From farm equipment to farmland to trucks, agricultural producers in the area are spending at a brisk pace,” said Creighton University economist Ernie Goss, co-author of the report.

Agriculture

Farmland prices continue to be robust as the farmland price index remained above growth neutral for the 12th straight month at 75.4, but down a tick from December’s 76.9. Respondents noted they expect the strong farm economy to drive cash rental rates for farmland in 2011.

“More than three-fourths of the CEOs anticipate cash rents to rise by more than 5% in 2011, and approximately one-fifth expect these rents to grow by more than 10%,” said Goss.

Banking

The strong rural economy has dampened the growth for lending as the loan volume index for January declined to a record low 33.9 from December’s 52.3 and November’s 35.3. The other two banking indicators, checking deposits and certificate of deposits, remained above growth neutral for the 11 straight month.

The rural economy continued to add jobs in January as the jobs index increased to 52.5 in January from last month’s 50.1. “For this part of the country, rural areas are clearly outpacing the urban areas in terms of job growth. While employment in the urban areas is virtually flat, annualized growth in the rural areas is a healthy 2%,” said Goss.

Bankers continue to have a bright outlook on the rural economy as the economic confidence index improved to 63.4 in January from December’s reading of 62.2

Outlook

The rural economy continues to be a bright spot in an otherwise uncertain economic environment. January did see a pause in farmland appreciation, but this is to be expected as the traditional selling season slows down.

The outlook for 2011 continues to be bright. High grain prices and expectations of record planted acres could bring record production and profits to the rural economy.

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