On February 19th, Creighton University released their Rural Mainstreet Economy index, which is a survey of small community bank CEOs in non-urban, agriculturally dependent states that include Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming. The Rural Mainstreet Index (RMI), which measures current economic conditions and projected economic outlooks six months down the road, declined to 16.9, the lowest reading for the index since the survey began in 2005, and down from January's reading of 24.5.

Creighton University economist Ernie Goss commented that "all states in the survey area are being negatively affected by the national and global recession." Mr. Gross also noted "for Colorado, Montana, North Dakota and Wyoming, recent weakness in energy prices has hampered growth" and "for Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska and South Dakota, downward pressures on farm income has been the culprit."

One bright spot is the survey's farmland index rose slightly to 38.3 from January's 36.6, although that's well below the high of 81 the farmland index hit last January. "Land prices have leveled off and in some instances have dropped slightly," said Dale Torpey, president of Federation Bank in Washington, Iowa. "If some of the farmers can't renegotiate their rent prices, we could be looking at losing some of them in 2010."

Roughly one-third of bankers surveyed indicated that their area had not recorded price decreases in the prices for farmland, although 16.3 percent of the bankers reported price declines greater than five percent over the past six months.

Farm equipment sales index also improved slightly in February to 31.0 from last month's record low of 29.4. In February 2008 the index was 75.4.

The survey's confidence index, which reflects expectations for the economy six months from now, declined slightly to 21.2 from January's 25.9.

There is some opportunity hidden in all of this mess. The farmland price index stabilizing is a sign that investors and farmers see farmland as a safer investment compared to other alternatives such as the stock market. The index and comments display there is always strong demand for high quality farmland.

We see now as a great time to invest in farmland as it has demonstrated that it can withstand serious economic problems in the past. Since the 1900s, farmland has only significantly decreased in value twice; once during the great depression and the other being during the high inflation days on the early 1980s. We expect that farmland prices will recover due to the long-term supply/demand imbalances as discussed in our early posts.
 

In this "credit crunch," every industry is going to take some sort of a hit, but farmland could be a solution for finding a reliable, alternative investment.

- Colvin