Improving Grain Prices Boost Rural Growth

The rural economy grew for the first time in six-months; increasing commodity prices at the end of June improved the outlook for farm income in 2015, helping boost the rural economy. Farmland prices continued to vary across the surveyed area. Marginal farmland continued to make up the majority of properties for sale in July, negatively impacting the view of the overall market. The farm equipment sales index improved slightly behind higher farm income, but remains near all-time lows.

 

The Rural Mainstreet Index (RMI), an index which ranges from 0 to 100 with 50.0 representing growth neutral, increased in the July report to 53.4, from 50.0 in June. Ernie Goss, Ph.D, Economics Professor at Creighton University stated, “This is the fourth straight month the index has risen, indicating an upturn in economic conditions for the region. Improving crop prices pushed the overall index and the economic outlook higher for the month."

 

 

 

 

The Farmland Price Index increased to 31.4 from 31.1 in June. “This is the 20th straight month the index has moved below growth neutral. But, as in previous months, there is a great deal of variation across the region in the direction and magnitude of farmland prices,” said Goss.

 

Farmland sales and auction results over the last month confirmed Prof. Goss’s findings. Farmers and realtors reported farmland sales ranging from as high as $11,800 per acre in southwestern Minnesota, to auctions in central Iowa missing reserve prices as low as $6,800 per acre. Another reason the index may still be below growth neutral is because the majority of farmland for sale continues to be more marginal lower producing ground.

 

 

 

 

The Farm Equipment Sales Index increased to 17.9, from 12.5 in June. An increase in crop prices over the last month increased the expected farm income outlook, helping the farm equipment index. Farm equipment manufacturers had been optimistic about global sales potential, but a recent Bloomberg report suggested Brazilian farm equipment sales have also decreased due to low commodity prices.

 

Bankers were asked, “How much farmland prices had changed in their area over the last year?” The majority of respondents reported land value decreases with the largest percent suggesting a decrease between 5% and 9%. The largest decrease reported was 29%. 16.2% of respondents said land values have not changed over the last year while 7% said land values increased.