Strong crop production in Ninth District helps offset lower prices

Farmers have been preparing for a bumper crop this year: Nationally, a record number of soybean acres were planted this spring, and while corn acreage was down from last year, weather in much of the country was favorable enough to produce good yields. And, sure enough, the USDA’s latest crop production estimates for 2014 confirm record production of both commodities for the United States.

The picture was only slightly different in the Ninth District. Due to a late spring and an early frost, corn yields in Minnesota and North Dakota were revised down from earlier forecasts, and production came in below 2013 (see Chart 1), though only narrowly for Minnesota. Corn production for South Dakota and Wisconsin did hit new records, however.

Soybean production hit new records in every district state, the result of both higher acreage and improved yields. North Dakota saw the biggest increase, with a 41 percent jump in bushels grown over 2013 (see Chart 2).

The big harvest should offer some comfort to farmers, who are also coping with much lower prices for these outputs, thanks in part to the expected boost in supply. Prices received by farmers for soybeans were down 23 percent in October compared with a year earlier, while corn prices fell 36 percent over the same period, according to the USDA.

  Crop production -- 11-17-14

October Mid-America survey shows softness in Dakotas; Minnesota on top

Update from last week’s blog.

Results from the October Mid-America Business Conditions Index, released this week, show weakening conditions in the Dakotas and Minnesota. The index surveys supply managers monthly in a nine-state region, and an index greater than 50 indicates expected expansion over the next three to six months.

For the first time in recent memory, sentiment in North Dakota is hovering near contraction, with the state’s overall index declining to 54.8 and employment dropping to 51.2; both of South Dakota’s scores have continued a general descent of late, declining to 51.8. While Minnesota’s scores also dropped, it remains a bright spot, with its overall index at a healthy 63.7, with employment at 56.7.

Mid-America UPDATE -- 11-4-14

Sure it’s cold, but we’re upwardly mobile

If you live in a Ninth District state, which do you prefer, moving out or moving up? Probably the former if you don’t like the cold, but likely the latter in most other cases. And while Ninth District states have cold winters, so too do they offer better upward income mobility than the nation overall, according to data from a team of researchers from Harvard and UC-Berkeley.

The research project, dubbed Equality of Opportunity, collected income data on millions of parents in the last half of the 1990s. It then tracked how kids from low-income families in this sample fared in 2011 and 2012, when they were in their early 30s. (For more information on the study’s methodology, go here.)

The study split the country into more than 700 commuting zones, which are rough approximations of local economies (urban and rural). It then ranked commuting zones for absolute upward mobility—roughly, the average national income rank of a child from low-income parents in the commuting zone.

The data show that Ninth District states stand out for high absolute upward mobility. The distribution of scores for commuting zones in every district state (including the combined region of northwestern Wisconsin and the Upper Peninsula of Michigan) skewed higher than scores for all other commuting zones not in the Ninth District (see charts below).

For more data and discussion on this topic, see the October fedgazette for in-depth articles on both high income mobility and low income mobility in the Ninth District.

  Absolute income distribution 9th states -- 11-13-14

U.P. electricity prices tops in district

Households and firms in the Upper Peninsula of Michigan have long complained about expensive power. Civic and business leaders say high electricity rates squeeze family budgets and hamper efforts to foster industrial development in a region plagued by high unemployment.

Angst over the price of U.P. electricity has come to a head this fall. A regional power grid authority has ordered Wisconsin-based We Energies to continue operating an aging coal-fired power plant near Marquette, with costs passed along to U.P. ratepayers. If federal energy regulators approve, U.P. utility customers could see average rate increases of $100 annually to fund operating subsidies for the Presque Isles plant and two other coal-fired power plants in the U.P.

The Michigan Public Service Commission and big U.P. power consumers such as Cliffs Natural Resources—owners of the Empire and Tilden iron mines—have objected to the proposed rate hikes, saying they would further burden utility customers already paying dearly for electricity.

Federal price data show that U.P. residents pay higher electricity rates than those in other parts of the Ninth District and the nation as a whole (see Chart 1). Electricity costs about 20 percent more in the U.P. than it does in Minnesota and about 35 percent more than in North Dakota. But Yoopers pay less than Michiganders overall, and U.P. power is a bargain compared with utility rates in some parts of the country, such as New England.

However, the U.P. average rate obscures wide disparities across the peninsula; residents of some U.P. communities pay significantly more than others to keep the lights on, the result of differing customer densities and, in some cases, reliance on imported power rather than local generation sources. State PSC figures for 2013 show that power producers such as Upper Peninsular Power Co. and the Alger Delta Cooperative Electric Association, which primarily serve customers in the western and central U.P., charge much higher rates than other utilities (see Chart 2).

UP power -- 11-3-14

Surveys: District manufacturing, state economies seeing fluctuation

Amid the news of falling oil prices and a slowing global economy in contrast to a comparatively strong U.S. economy, two monthly surveys by Creighton University offer a somewhat muddled picture of economic growth in three Ninth District states.

The Rural Mainstreet Index asks community bank presidents and CEOs in rural areas of a 10-state region (including Minnesota and the Dakotas) about current economic conditions and six-month outlook in roughly 200 small communities.

Since mid-2013, the overall index has stayed mostly in expansion territory (an index score of 50 or more). But the index has dipped into contraction on a couple of occasions—particularly for South Dakota—and the general slope of sentiment is slightly downward (see Chart 1).

The good news: Respondents have been upbeat on new hires, with particularly strong scores in Minnesota and North Dakota. The less good news: Sentiment toward farmland prices has tumbled, especially in Minnesota and South Dakota, most likely stemming from low crop prices over this period. Aside from a single-month blip, North Dakota’s farmland index has stay strongly in expansion territory, most likely the result of the state’s very strong economy, with farmland prices possibly being buoyed by demand from nonfarmers.

Mid-America Ch1 -- 10-31-14

A second survey by Creighton, the Mid-America Business Conditions Index, compiles monthly data from manufacturing, purchasing and supply executives in the same 10-state region (and also including Minnesota and the Dakotas). Overall, respondents in these Ninth District states have reported solid expansion, with the overall index slightly upward over the past year (see Chart 2). After a big uptick in employment sentiment, index scores dropped over the summer, but respondents in Minnesota and North Dakota continued to see healthy expansion in the latest surveys. In both manufacturing indexes (overall and employment), South Dakota has seen its scores dip of late, and they appear to be trending downward.

Mid-America Ch2 -- 10-31-14

A summer of steady growth in the Ninth District

The Ninth District economy continued to show signs of steady growth through the summer months, characterized by job growth, decreases in unemployment rates and gains in home building.

As of August, nonfarm employment in district states was up 1.8 percent relative to a year ago, posting a net increase of about 122,000 jobs. North Dakota reported the strongest employment growth among district states, accounting for about one in every six jobs added in the Ninth District over the past 12 months despite the state’s workforce comprising only 7 percent of the district total. Employment growth in other district states was largely in line with the national trend (up 1.8 percent), except in South Dakota, where nonfarm employment growth was 0.7 percent.

The district unemployment rate dropped to 4.7 percent over the same period, down 0.8 percentage points from a year ago. The spread in unemployment rates among district states has narrowed over the past 12 months. Regions with relatively high unemployment rates, such as the Upper Peninsula of Michigan, Wisconsin and Montana, posted larger year-over-year declines than Minnesota and the Dakotas, where unemployment rates started out much lower last year.

Manufacturing wage growth in the district slowed to 1.4 percent during the three-month period ending in August, compared with a growth rate of 2.5 percent during the same period a year earlier. With the exception of North Dakota and Wisconsin, growth in manufacturing wages in district states was below the national average of 1.6 percent. Montana’s manufacturing workers reported the lowest year-over-year growth rate in hourly earnings among district states, which barely reversed the flat or declining trend in manufacturing wages in the state for much of 2013 and early 2014.

During second quarter 2014, personal income growth (adjusted for inflation) across district states was positive, posting a 2.2 percent overall increase relative to a year ago for the district. Except for North Dakota, all district states posted lower personal income growth rates relative to the national average of 2.4 percent, while South Dakota’s state ranking in growth was near the bottom.

New housing authorizations for the three-month period ending in August were up 8.2 percent in district states; however, rates varied widely among district states. Montana and South Dakota posted year-over-year declines of over 20 percent in new housing authorizations, while North Dakota showed a 42 percent increase over the same period. Housing authorizations in Minnesota and Wisconsin were up 5 percent and 10 percent, respectively, closer to the national average of 7.7 percent.

Home prices continued to show increases in several district cities. During the second quarter of 2014, home prices were 7.4 percent higher than a year ago in Bismarck, N.D., 6.7 percent higher in Minneapolis-St. Paul, 3.2 percent higher in Fargo, N.D., and 2.6 percent higher in Sioux Falls, S.D. Nationally, home prices increased by 4.4 percent during the same period.

For current and historical data on the economic indicators referenced here, see the “Monthly Summary” spreadsheet, along with other Ninth District data that are updated regularly.

Minnesota: The land of 10,000 deep-fried things

The annual Minnesota State Fair finished on a high note this year, setting an attendance record of 1.82 million. The state’s fair is known for its unusual popularity compared with fairs of other states, and it is the second-largest state fair in the nation, second only to Texas.

The fair’s popularity has continued to grow slowly and steadily over time, with only occasional and modest declines in annual attendance (see chart). One of the reasons for this steady attendance pattern likely has something to do with simple population growth. Since 1990, the Minnesota State Fair has typically attracted the equivalent of about one of every three residents (fluctuating modestly between about 31 percent and 36 percent of the state population in a given year). As the population has grown, so too has State Fair attendance.

That doesn’t, however, explain why the Minnesota State Fair is popular to more of its residents than those of other states. For example, attendance at the Wisconsin State Fair represents fewer than one in five state residents. The State Fair of Texas attracts about 2.8 million visitors (over 24 days, compared to Minnesota’s 11 days). Still, that works out to barely one in 10 residents of the Lone Star State.

State Fair attendance -- 10-15-14

Oil rigs retrench on Fort Berthold

Oil drilling has dropped on the Fort Berthold Indian Reservation in western North Dakota, home of the Three Affiliated Tribes. Since 2012, when the state Industrial Commission began reporting drilling data on Fort Berthold, the number of active rigs on the reservation has fallen by 20 percent (see chart).

Drilling on tribal property—land held in trust by the federal government for either the tribes or individual tribal members—has declined even more. In contrast, drilling on “fee land,” private property within the reservation boundary, has increased over the same period. Meanwhile, drilling activity in the rest of the Bakken region decreased, but by a smaller percentage than Fort Berthold, and in recent months the rig count outside the reservation has increased.

Fort Berthold has benefited from hundreds of millions of dollars in annual oil tax and lease revenue that has buoyed the tribes’ economic fortunes. A slowdown in drilling on trust land could reduce the flow of these revenues, at least in the short term.

The reasons for the drilling pullback aren’t clear, but oil industry sources cite reservation fees as a factor. In addition to state well permitting fees, oilfield operators on the reservation pay a federal drilling fee of $6,500, plus various fees charged by the tribal government, including drilling fees and licensing charges for vehicles and contractors. In 2013, the tribes collected over $20 million in fee income.

“[Drilling firms] say that it’s too costly [to operate] on the reservation because of all the additional fees,” said Steve Kelly, owner of Trustland Oil Services, an oilfield services firm in New Town, N.D. Some charges, such as federal and tribal drilling fees, apply to trust land but not to fee land.

This year, tribal officials proposed additional fees—right-of-way charges for pipeline development on the reservation and royalties on natural gas that oil companies flare at the wellhead.

Recently tightened state rules for flaring may offer another disincentive for reservation drilling. Almost half of the gas produced on the reservation is flared due to inadequate gas gathering infrastructure. The gas pipeline network is particularly thin in the western part of the reservation, which is mostly tribal land.

For much more on energy development on the reservation and its impact on the tribes, see the forthcoming October issue of the fedgazette.

Fort Berthold rig chart -- 10-1-30

North Dakota leads district in personal consumption expenditures

Robust income gains in North Dakota in recent years appear to be leading to strong increases in personal consumption, according to recently released prototype estimates by the Bureau of Economic Analysis (BEA).

In 2012, personal consumption expenditures (PCE) per capita in North Dakota were estimated at $44,029 (see Chart 1), which ranked third in the country behind Massachusetts and Connecticut. Four of five district states were above the national average; Wisconsin was the only state below the national average.

PCE CH1 -- 9-30-14

State rankings vary by consumption category (see table for examples). While Minnesota’s per capita consumption ranked 14th in the nation overall, its per capita consumption of food and beverages purchased for off-premises consumption ranked 45th, which suggests that Minnesotans buy fewer groceries than residents in other states. Meanwhile, North Dakota ranked 31st in spending for housing and utilities despite ranking third overall.

PCE table -- 9-30-14

However, it’s important to note that state rankings may reflect not only differences in the overall amount of consumption, but also differences in prices. For example, even though housing costs in the western part of North Dakota are high, costs in the state overall are still moderate relative to other states, a likely reason for the middle ranking for housing and utilities. But it’s not surprising that Montana and the Dakotas rank relatively high in gasoline consumption, considering that the states have a larger proportion of population living in rural areas and often have longer travel distances than more urban states.

From 1998 to 2012, PCE per capita decreased only during the last recession, except in North Dakota (see Charts 2 and 3). During 2011 and 2012, real PCE per capita in North Dakota increased about 7 percent annually, the strongest growth among U.S. states.

PCE CH2-3 -- 9-30-14

The BEA plans to conduct additional outreach with data users to assess these prototype estimates, review the estimation methodology and continue to make improvements. The BEA plans to release official PCE statistics in 2015, provided that user evaluations are positive.

Farmland sales down in Ninth District

After several years of big increases, there are mounting indications that farmland prices have started to moderate. The change in the quantity of farmland bought and sold can offer added insight into what’s going on in that market.

The volume of farmland sales is harder to verify because no central agency tracks land sales nationally. Further, there are relatively few transactions, and individual pieces of land don’t change hands very frequently, often less than once a generation. For instance, in Minnesota, one of the only states for which a detailed record of land transactions is available, just under 120,000 acres were sold in 2013, out of 26 million farm acres in the state.

For this reason, the Minneapolis Fed’s second quarter (July) Survey of Agricultural Credit Conditions asked lenders a special question on land sales: “How does the volume of farmland sales this year compare to last year in your area?” As the chart shows, most respondents reported that the number of sales was down.

Farmland sales -- 9-24-14

A Minnesota lender said that the “land market is really a big guess, as very little [is] selling,” adding that the expectation was for “prices to decline as grain prices fall.”

These findings suggest that falling crop prices are helping to lower demand among farmland buyers, causing farmland values to level off (as economic theory would imply). Fewer farmland sales also imply that rather than selling into a plateauing market, farmers appear to be holding tight to their land at the moment.


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