99 posts categorized "Wisconsin"

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.

Metro GDP: Move over Bismarck; Billings is top performer

The Bureau of Economic Analysis recently released estimates of 2013 gross domestic product for metropolitan statistical areas. Ten of the 15 Ninth District MSAs beat the national MSA average of 1.7 percent growth.

Billings was the top-ranked MSA in the Ninth District, at 7.1 percent, 11th best out of the 381 U.S. MSAs in growth rate, followed closely by Bismarck at 6.9 percent. However, not all metros are seeing strong growth. Both Great Falls and Missoula lost GDP in 2013 when compared with 2012, and three others failed to match the modest national average for MSAs.

MSA growth also has varying influence on state economies because output concentration differs across district states. Minnesota MSAs, for example, account for 84 percent of the total output for the state, while Montana MSAs account for only 38 percent of total output.

MSA GDP table -- 9-22-14

Farmland values still soaring? Not so fast

In early August, the USDA released its annual estimates of farmland values, showing an increase of 7.6 percent for U.S. cropland in 2014 over a year earlier. Values in the district were up even more; South Dakota saw the biggest increase in the country at 20.8 percent (see table). This was something of a surprise, given results from the Minneapolis Fed’s second-quarter survey of agricultural credit conditions, which indicate that farmland price growth has slowed and even decreased in some cases.

USDA table -- 8-28-14

One reason for the discrepancy is obvious—the numbers come from different surveys. The Fed survey covers lenders, while the USDA’s covers landowners themselves and is also much larger and more thorough. But another reason USDA land values showed a bigger jump this year goes back to June, when earlier USDA estimates of 2009-13 land values were revised. In most states, earlier values were revised down, which makes the increase in 2014 look bigger than it otherwise would have.

For example, the USDA estimated that Minnesota cropland sold for $4,850 an acre when it released its summary in August 2013. Last June, it revised that estimate down to $4,050 an acre, 9.5 percent less than the earlier estimate. The newly released 2014 Minnesota estimate of $4,870 is nearly unchanged from the earlier 2013 number, so much of the apparent jump this year reflects a downward revision of last year’s statistics (see chart).

Given the larger sample size and rigorous methodology, the USDA survey is a better indicator than the Fed’s. But the revisions suggest that land prices may not have grown as much in 2013 and earlier years as initially thought.

USDA farmland chart -- 8-28-14

Business survey: Ninth District should continue to grow

Results from a Federal Reserve Bank of Minneapolis ad hoc survey of 603 Ninth District firms (see methodology) reveals that economic activity at firms across industry sectors increased over the past four quarters and should continue over the next four quarters (see table).

Looking back: Firms across industries reported increased sales revenue, profits, productivity and employment. The availability of labor decreased, especially in the construction sector, where the majority of respondents reported a lack of available labor. Respondents from most sectors reported increases in selling prices and input costs. Wage and benefit increases were moderate. They also noted an uptick in availability of financing.

Looking forward: Respondents are more optimistic for the next four quarters, as a higher proportion of respondents reported expectations for increased sales revenue, profits, productivity and employment. The availability of labor is expected to continue to decrease. Respondents expect to raise prices and pay more for inputs. However, wage and benefit increases are expected to be moderate.

State economic outlook: Respondents expect their state economies to grow as well. Employment, consumer spending and profits are all expected to increase. However, the vast majority of respondents across industries expect inflation to increase.

August ad hoc table -- 8-21-14

Ad hoc survey methodology: On Monday, August 18, an email was sent to 5,000 contacts (not a random sample) from various sectors around the Ninth District. By 12 noon Wednesday, August 20, 603 responses were received, representing a 12 percent response rate. The largest number of responses came from finance (24 percent), professional services (20 percent), manufacturing (15 percent), real estate (13 percent), construction (8 percent) and nonprofits (7 percent).

Health insurance premiums vary widely for state workers

Health insurance for employees is a major expense for state governments, but costs vary widely across the nation and Ninth District, particularly for premiums involving workers and their families, according to a new report this week by the Pew Charitable Trusts.

Monthly, employer-paid premiums for employees (only) are relatively similar among Ninth District states, from a low of $427 in North Dakota to a high of $587 in Wisconsin, which is also the only state whose employees share in the premium cost, at $97 per worker. Montana state employees, on average, receive a small credit of $21, according to Pew.

Much bigger differences occur in state health care coverage for workers and their dependents. South Dakota actually spends slightly less (per month, per worker) on family coverage ($493) than on single coverage ($496), and the state also requires a considerable cost share of $183. State-based costs for families in North Dakota are twice as high as in its southern neighbor, and South Dakota workers pay nothing. Premium costs in Minnesota and Wisconsin are higher still. With a total monthly premium of almost $1,700, Wisconsin has the second-highest health care premiums for state workers with dependents in the country, behind only New Hampshire.

State helath care premiums -- 8-13-14

Homeownership rates continue to dip

Several years after the biggest housing bust in memory, and with several years of renewed (if modest) growth, many believe the housing market is on the path to recovery. Homeownership rates, however, have yet to reverse their downward trend.

Since 2005, homeownership rates have seen a steady and comparatively steep decline, from 69 percent to less than 65 percent in the second quarter of this year. The annual trend has been more volatile in Ninth District states, but is generally following the same downward pattern, especially in Minnesota and Wisconsin (see charts). Only South Dakota is anywhere near its peak in homeownership rate over the past decade.

Homeownership -- 8-4-14

Made in (but not owned by) the USA

Investment is typically seen as a sign of economic strength, as people and financial entities put their money where they believe it can be most productive and profitable. Foreign direct investment (FDI) tracks the amount of money international firms invest in the United States, and a recent report on the matter by the Brookings Institution shows that it’s growing in the Ninth District, but not as fast as it is elsewhere in the country.

In 2013, for example, companies invested $1.46 trillion in locations outside their home country, and the United States is the single largest destination of that capital, receiving $193 billion, according to the report. This investment manifests itself in many forms: spreading technology, facilitating the exchange of knowledge and inducing new trade.

It also employs millions of people, which the Brookings report investigated more closely. Among Ninth District states, the trends are somewhat diverging. In five Ninth District states (cumulative), total employment at foreign-owned establishments (FOEs) grew by about 50 percent from 1991 to 2011, and the share of total private employment at FOEs increased as well (see Chart 1). The growth in this share of employment tended to be modest—about one-half of a percentage point—with the exception of North Dakota, whose share of FOE employment tripled over this period, most likely as a result of foreign firms investing resources in (and hiring workers for) the Bakken oil patch.

However, across the board, district states have a lower share of FOE employment than the national average and (with the exception of North Dakota) saw less growth in the share of FOE employment. As a result, most distrct states fell in ranking among their peers in FOE’s share of total private employment (see table embedded in Chart 1).

One caveat to FDI trends: Much of this investment is the result of acquisitions or mergers of U.S. companies by international firms. So a considerable amount of the resulting “growth” in FOE employment is a methodological quirk—namely, a shift in the nationality of the parent company. This was particularly the case in North Dakota. Among district states, only Wisconsin was close to the national average in the share of FOE employment growth coming from new openings (see Chart 2).

FDI Ch1-2

Personal income weak across Ninth District in first quarter

Personal income in all Ninth District states grew less than the national average in the first quarter of 2014, according to just-released figures from the Bureau of Economic Analysis.

Quarterly personal income in North Dakota fell at an annualized rate of 2.9 percent, the worst of any state (see chart). Personal income in both North Dakota and South Dakota fell two quarters in a row.

Personal income chart -- 6-25-14

The subpar economic performance is almost wholly due to huge reductions in farm earnings, which were steepest in North Dakota (see table). Crop prices for most of the district crop commodities fell, while many input costs rose. This put downward pressures on farm earnings. However, Wisconsin saw gains in farm earnings, possibly attributable to dairy, whose output prices remained firm as feed input costs decreased.

In that light, economic conditions are not as dire as they might seem. Almost all the industry groups experienced some gains in income in the first quarter. Oil production is still growing in North Dakota, as the mining industry (which includes oil production) grew by an annualized 8 percent in the first quarter after rising over 7 percent in the fourth quarter of 2013.

Personal income table -- 6-25-14

More big farms, but not everywhere

The United States has been losing farms for the better part of 90 years, the result of slow, steady consolidation of farms into bigger operations thanks to increased mechanization and other productivity enhancements that bring increasing returns to scale. The most recent agricultural census shows that this consolidation is still ongoing, but comes with some interesting caveats.

The census, done every five years and most recently in 2012 (with data just now coming available), shows that the overall number of farms declined by almost 5 percent nationwide, or about 95,000 farms, since 2007. However, total farm acreage dropped by less than 1 percent.

The drop in farm numbers was even more accelerated in Minnesota and Wisconsin, where farms declined by about 9 percent and 13 percent, respectively. The two states also lost a combined 3.5 percent of farmland acreage. Farms were lost in virtually all categories of size, from very small to quite large. However, there is growth among the very largest farms—those over 2,000 acres—both in the United States and in Minnesota and Wisconsin (see Chart 1).

The Dakotas and Montana, on the other hand, are seeing very different farm trends; overall loss of farms is much smaller, ranging from 5.4 percent in Montana to a 3.3 percent drop in North Dakota. South Dakota actually saw total farms increase by 2.6 percent. Total farm acreage in these states dropped by 1.6 percent—more than the national average, but less than half the rate in Minnesota and Wisconsin. The Dakotas and Montana are also seeing growth in very small farms—those under 100 acres—and a decline in large farms (with a small exception of South Dakota’s largest farms; see Chart 2).

Farms by size & revenue Ch1-2 -- 6-20-14

It’s difficult to say exactly what’s behind this trend. While organic and other small-farm operations are growing, this is also likely a function of more small hobby-farm residences, as well as an increase in hunting properties being bought with growing income in the region, but kept (and rented out) as farm property.

While the number of small farms grew in Montana and the Dakotas, all three states are nonetheless dominated by large-revenue farms, where between 32 percent (Montana) and 42 percent (South Dakota) of farms have revenues exceeding $1 million. That compares with about 20 percent nationwide, and just 18 percent in Wisconsin and 29 percent in Minnesota (see Chart 3).

Farms by size & revenue Ch3 -- 6-20-14

Head of the 2013 class (again): North Dakota

North Dakota is like the kid at school who gets all the awards. She can’t help it. Everyone else tries hard, but she’s just that good.

The Bureau of Economic Analysis came out with its most recent estimates on state gross domestic product for 2013. Several Ninth District states were well above average, with Montana and South Dakota both cracking 3 percent and Minnesota not far behind at 2.8 percent.

But North Dakota was running laps around most states at 9.7 percent growth last year. It beat the next closest state (Wyoming) by two full percentage points (see Chart 1).

Those following economic activity in the Ninth District know that North Dakota’s performance is no fluke, the result of a sustained oil boom that started in the early part of the last decade. Since 2003, the state has seen its economy grow at an annual compound rate of 6.6 percent (adjusted for inflation). That's double the growth rate of all but four states over this period.

To put that in context, the state’s economy has roughly doubled since 2003 (inflation-adjusted) to $56 billion in annual output. By comparison, the Montana and South Dakota economies have also done very well among states over this period, ranking among the top quarter in annual growth. Considerably smaller in output compared with Montana and South Dakota in 2003, North Dakota easily leapt over both in total output over the past decade (see Chart 2).

2013 state GDP Ch1

2013 state GDP Ch2

 

 

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