Rural Mainstreet Economy Records Slow Growth for February: Nine of Ten Bankers Gauge Ethanol as Important to Economy

OMAHA – February 2023 Survey Results at a Glance:

1. For a third straight month, the region’s overall economic reading hovered slightly above growth neutral, indicating slow growth.
2. Farmland prices have now advanced for 29 straight months.
3. Farmers have expanded their purchases of farm equipment for 25 of the past 27 months.
4. In 2022, the 10-state region accounted for approximately three-fourths of all U.S. ethanol production.
   1. Roughly 91.3% of bankers with an ethanol plant in their economy indicated that it was an important industry for their local economy.
   2. Only 7.7% of bankers surveyed have an ethanol plant in their economy and rank it as a relatively unimportant industry in their area.
5. Approximately 63.0% of bank CEOs support capture and sequestration of CO2 from ethanol plants in their area provided farmers receive adequate compensation for pipelines crossing their farmland.

OMAHA, Neb. (Feb. 16, 2023) — For a third straight month, the Creighton University Rural Mainstreet Index (RMI) climbed above the growth neutral threshold, 50.0, according to the latest monthly survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy.

Overall: The region’s overall reading in February remained above the growth neutral threshold. The February index declined to 50.1 from 53.8 in January. The index ranges between 0 and 100, with a reading of 50.0 representing growth neutral.

“The Rural Mainstreet economy continues to experience slow economic growth. Only 7.4% of bankers reported improving economic conditions for the month with 85.2% indicating no change in economic conditions from January’s slow growth,” said Ernie Goss, PhD, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Farming and ranching: The region’s farmland price index decreased to 63.5 from January’s 66.0. This was the 29th straight month that the index has advanced above 50.0.

Farm equipment sales: As a result of solid farm financial conditions, the farm equipment-sales index stood at 52.1, which was down significantly from January’s much stronger 61.4. The index has risen above growth neutral for 25 of the last 27 months.

Banking: The February loan volume index declined to a much weaker 48.1 from 58.0 in January. The checking-deposit index fell to 38.5 from January’s 70.0, while the index for certificates of deposit and other savings instruments stood at a solid 57.7, but down significantly from January’s record high 72.0.

Hiring: The new hiring index for February slumped to 48.1 from January’s 53.9. Labor shortages continue to be a significant issue constraining growth for Rural Mainstreet businesses. Despite labor shortages, Rural Mainstreet expanded non-farm employment by 3.4% over the past 12 months. This compares to 2.6% growth for urban areas of the same 10 states for the same period of time.

Ethanol: Not surprisingly, ethanol represents an important industry for the region, which contains 72.9% of the nation’s ethanol plants and accounted for 75.8% of U.S. ethanol capacity for 2022. Approximately 88.4% of bank CEOs reported having ethanol plants in their rural area. Roughly 91.3% of bankers with an ethanol plant in their economy indicated that it was an important industry for their local economy.

To meet President Biden’s CO2 reduction goal contained in his Inflation and Deficit Reduction Act, ethanol plants would be required to reduce their CO2 emissions by 40% by 2030. This will likely mean the capture and sequestration of the CO2 or the closure of a high share of the plants.

Bankers were asked for their position on the delivery of CO2 via pipelines for sequestration.  Regarding the capture and sequestration of CO2 from ethanol plants in their area, approximately 63.0% of bankers support this process assuming adequate compensation to farms over which the pipelines cross. Approximately 23.1% of bankers expect that the use of imminent domain will be required to allow underground pipelines to cross farmland in their area.

Jim Eckert, CEO of Anchor State Bank in Anchor, Illinois, reflected the stance of a share of the bankers stating that, “My opinion is that CO2 storage is another ‘green’ scam. CO2 is not a greenhouse gas. Plants like and need it!”

Confidence: The slowing economy, higher borrowing costs and labor shortages continued to constrain the business confidence index to a weak 44.4, but up from 40.4 in January. “Over the past 11 months, the regional confidence index has fallen to levels indicating a very negative outlook,” said Goss.

Home and retail sales: The home-sales index sank to a weak 37.0 from January’s 38.5. “This is the ninth straight month that the home-sales index has fallen below growth neutral. An almost doubling of the 30-year mortgage rate over the past year and low inventory levels slowed home sales in the region over that time period,” said Goss.

The retail-sales index for February slipped to 50.0 from January’s 51.9. “Even so, bankers were pessimistic regarding the economic outlook with downward pressure on retail sales for the first quarter of 2023,” said Goss.

The survey represents an early snapshot of the economy of rural agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. The index provides the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey and launched it in January 2006.

Below are the state reports: 

Colorado: Colorado’s Rural Mainstreet Index (RMI) for February fell to 60.6 from 69.4 in January. The farmland- and ranchland-price index dropped to 62.6 from 76.2 in January. Colorado, with 1.6% of the nation’s ethanol plants, accounted for 0.8% of U.S. ethanol capacity, and ranked ninth in the 10-state region in 2022 ethanol production.

Illinois: The February RMI for Illinois sank to 31.0 from January’s 45.8. The farmland-price index sank to 55.2 from 66.2 in January. The state’s new-hiring index slumped to 38.3 from January’s 49.5. Illinois, with 6.8% of the nation’s ethanol plants, accounted for 10.0% of U.S. ethanol capacity, and ranked third in the 10-state region in 2022 ethanol production.

Iowa: Iowa’s February RMI increased to 56.9 from 56.3 in January. Iowa’s farmland-price index fell to 63.7 from January’s 70.6. Iowa’s new-hiring index for February moved down to 48.8 from January’s 55.1. Iowa, with 21.4% of the nation’s ethanol plants, accounted for 27.0% of U.S. ethanol capacity, and ranked first in the 10-state region in 2022 ethanol production.

Kansas: The Kansas RMI for February dropped to 53.5 from January’s 54.1. The state’s farmland-price index climbed to 70.1 from January’s 69.7. The new-hiring index for Kansas plummeted to 50.2 from 63.9 in January. Kansas, with 6.3% of the nation’s ethanol plants, accounted for 3.5% of U.S. ethanol capacity, and ranked sixth in the 10-state region in 2022 ethanol production.

Minnesota: The February RMI for Minnesota slipped to 43.4 from January’s 44.5. Minnesota’s farmland-price index declined to 60.5 from 65.6 in January. The new-hiring index for February slumped to 44.8 from 48.9 in January. Minnesota, with 9.9% of the nation’s ethanol plants, accounted for 8.2% of U.S. ethanol capacity, and ranked fifth in the 10-state region in 2022 ethanol production.

Missouri: Missouri’s February RMI dropped to 49.8 from 59.2 in January. The farmland-price index fell to 63.2 from January’s 71.9. The state’s new hiring gauge shrank to 48.2 from 56.6 in January. Missouri, with 3.1% of the nation’s ethanol plants, accounted for 1.9% of U.S. ethanol capacity, and ranked eighth in the 10-state region in 2022 ethanol production.

Nebraska: The Nebraska Rural Mainstreet Index moved above growth neutral to 53.1 in February from 53.6 in January. The state’s farmland-price index for February declined to 64.6 from 69.5 in January. Nebraska’s February new-hiring index slumped to 49.9 from 53.7 in January. Nebraska, with 12.5% of the nation’s ethanol plants, accounted for 12.9% of U.S. ethanol capacity, and ranked second in the 10-state region in 2022 ethanol production.

North Dakota: North Dakota’s RMI for February plummeted to 50.4 from January’s 58.9. The state’s farmland-price index sank to 63.5 from 71.7 in January. The state’s new-hiring index declined to 48.5 from 56.4 in January. North Dakota, with 3.1% of the nation’s ethanol plants, accounted for 3.1% of U.S. ethanol capacity, and ranked seventh in the 10-state region in 2022 ethanol production.

South Dakota: The February RMI for South Dakota increased to 44.8 from 43.3 in January. The state’s farmland-price index decreased to 59.6 from January’s 65.1. South Dakota’s February hiring index fell to 43.7 from 48.3 in January. South Dakota, with 8.3% of the nation’s ethanol plants, accounted for 8.3% of U.S. ethanol capacity, and ranked fourth in the 10-state region in 2022 ethanol production.

Wyoming: The February RMI for Wyoming slumped to 42.8 from 47.7 in January. The February farmland- and ranchland-price index decreased to 60.2 from 67.0 in January. Wyoming’s new-hiring index sank to 44.5 from January’s 50.5. Wyoming, with 0.0% of the nation’s ethanol plants, accounted for 0.0% of U.S. ethanol capacity, and ranked 10th in the 10-state region in 2022 ethanol production.

Tables 1 and 2 summarize the survey findings. Next month’s survey results will be released on the third Thursday of the month, March 16, 2023.

For more business insights from Goss and Creighton University, tune into the Creighton Talks Business podcast.