Rural America poised for more economic gains

By Sarah Gonzalez

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, April 18, 2012- Rural America appears poised for additional economic gains in the year ahead, according to the Federal Reserve Bank of Kansas City agricultural and rural analysis written by Vice President and Omaha Branch Executive Jason Henderson and Associate Economist Maria Akers.

“Stronger economic growth in the United States could provide an additional boost to business activity on Main Street,” states the report. “However, areas of weakness in the national economy cast a shadow of uncertainty on rural prosperity in the year ahead.”

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USDA projects that 2012 real farm income will be short of the 2011 peak by 8 percent, they wrote, but still the third-highest value since 1980 and well above the latest 10-year average. Gross farm income is expected to rise 1.5 percent in 2012 and crop receipts are projected to edge up in 2012 as expanding production offsets slightly lower crop prices.

Henderson and Akers summarized that strong global demand and booming commodity markets spurred robust growth in many mining and farming communities in 2011, while soaring crude oil prices sparked increased domestic drilling activity and swelling global food demand ushered in record highs for U.S. agricultural exports. Non-irrigated farmland values soared 20 to 40 percent above year-ago levels, due to strong farm income and low interest rates. 

However, they noted rising energy prices, a weak housing market and tight government budgets constrained some rural economic growth. Fiscal challenges in state and local governments also curbed the economic rebound.

Despite much growth for rural America in 2011, challenges demonstrated the downside of high commodity prices including rural wholesale trade and transportation firms cutting payrolls. Also, struggling rural retailers cut employment by more than two percent in 2011. 

Henderson reported rural consumers spending a greater share of their income on fuel costs. High fuel and food costs strained rural household budgets and also affected rural tourism. Leisure and hospitality firms in rural areas reduced staff more than 10 percent in 2011, stated the report.

Overall, the 2011 rural unemployment rate trended down to 7.9 percent, remaining below the 8.4-percent rate in metro areas during the fourth quarter of 2011. The number of mining jobs in rural communities rose 8 percent during the year due to high crude oil prices that triggered an 18-percent surge in U.S. drilling activity in rural America.

Rising commodity prices and surging global food demand boosted the farm economy as a whole last year, the report explained. The Federal Reserve Bank reported that U.S. agricultural exports jumped 18 percent in 2011, with the bulk sent to developing nations, such as China, which has emerged as the leading export destination for U.S. agricultural exports.

“Global demand pushed crop inventories to record lows and crop prices to record highs. By the end of 2011, less than 8 percent of U.S. annual corn consumption was held in storage, half the levels from two years ago.”

Crop exports rose 21 percent in 2011 due to strong wheat, cotton and grain shipments. On the livestock side, annual red meat and dairy exports soared almost 30 percent while poultry exports rose 17 percent.

The report also outlined the benefits rural manufacturing gained from the commodity boom. Rural manufacturing employment has rebounded sharply, rising almost 4 percent in 2011 alone, double the national average. Additionally, processed food and metal product exports rose more than 24 percent during the past year. For 2012, the report explains that high commodity prices and robust export growth could continue to rejuvenate rural manufacturing activity.

“The rebound in rural manufacturing activity, however, did not translate into stronger wholesale trade and transportation job gains,” explained the report. “Sluggishness in business activity outside of commodity markets and high fuel costs strained profits at transportation firms, limiting employment and wage gains in 2011.”

In summary, the Henderson and Akers wrote that high commodity prices could sustain the economic strength in mining and farm communities.

“Further economic gains on a global basis could support additional export opportunities for rural goods-producing industries, while a stronger U.S. economy could mitigate the headwinds that have worn on rural America the past few years,” they said.



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