- Associated Press - Sunday, January 15, 2017

SIOUX FALLS, S.D. (AP) - South Dakota roared out of the Great Recession.

In 2011, as the nation’s economy slogged through a slow recovery, South Dakota’s growth surged over 7 percent.

By 2014, the tables turned. South Dakota’s economy limped along while the nation’s picked up.

What makes South Dakota out of sync with the national economy?

In a word: corn.

Sioux Falls’ status as growing retail, housing, and health care hub have pushed the state’s economy forward, but none of those sectors carries as much weight as agriculture.

The price of corn has been a steady indicator of the state and metro area’s economies in recent decades, the Argus Leader (http://argusne.ws/2iBk0Ky ) reported. When corn prices go up, the local economy outperforms the national economy. When corn prices go down, the local economy lags behind the national economy.

The latest dip in corn prices is among the biggest drags on the state’s current budget. Gov. Dennis Daugaard said last month the state faces a $26 million shortfall in the budget year that ends June 2017, and that agriculture and online sales are the biggest factors.

Slowing farm income is also being felt in the state’s largest city, where City Hall is bracing for sales tax revenue to fall below projections.

The revenue dips come even as the state’s employers hire more workers and builders start more homes. But farmers aren’t making big-ticket purchases like they were a few years ago. That’s in part because they’re seeing less income but also because many bought new equipment ahead of schedule when income soared earlier this decade.

“Now we’re seeing the hangover from that,” Daugaard said.

Sioux Falls was riding high on economic success when Mayor Mike Huether gave his first state-of-the-city address in 2011, a year after taking office.

City Hall had come in under budget, bolstered its reserves to $41.7 million and had less debt per capita than other, similarly sized cities. Sioux Falls’ success was “rocket fuel” for the rest of the state’s economy, Huether said at the time.

Actually, it was a different, less metaphorical fuel feeding the state’s economy.

Most of South Dakota’s corn crop goes to ethanol production. After Congress expanded standards in 2007 requiring fuel companies to blend their products with ethanol, corn prices started their march upward. The same year - the same month, in fact - Huether made his comment, corn topped $6 per bushel for the first time.

Huether declined to be interviewed by phone but in an email said the city’s economy is closely linked to the agriculture industry. Companies such as John Morrell and Co., Raven Industries and POET all connect the city to the surrounding acres of farmland, and so do the plethora of local dealers selling combines, tractors and other types of farm equipment, he wrote.

And the link between Sioux Falls and agriculture goes further, to entertainment and retail industries, said Slater Barr, president of the Sioux Falls Development Foundation. Unlike coastal cities, Sioux Falls doesn’t have to compete with other metros when it comes to drawing in people from neighboring communities for concerts or shopping sprees.

“As discretionary income goes up, we are the destination,” Barr said.

While politicians sometimes take the credit - or the blame - for up and down swings in the economy, Mike Allgrunn, a member of the governor’s council of economic advisors, said the truth is, government officials have little sway when it comes to the economy, whether they serve at the local, state or federal level.

“I picture the economy like this big ocean liner, right? It’s moving along,” said Allgrunn, who also heads the economics department at the University of South Dakota. “One person isn’t going to make America great again all by himself, nor is he going to tank it all by himself.”

South Dakota is more reliant on agriculture than other states, and the financial implications of corn prices go beyond farmers. Farming and the agriculture industry account for nearly a third of the state’s economic output, according to the South Dakota Department of Agriculture.

An analysis of federal farming data by Slate.com shows South Dakota had the second highest crop value per-capita in the nation in 2012, at $6,591 per resident.

It’s no surprise, then, fluctuations in farming hold such a huge sway over state and local economies.

“It will show up on Main Street,” state economist Jim Terwilliger said. “You’ll see some of that impact.”

A number of forces came together to create the surging crop prices, buoying South Dakota’s economy as the rest of the United States was recovering from the Great Recession. Increased demand for ethanol, along with growing demand globally for protein and grain drove corn prices higher. Then, a 2012 drought in the Corn Belt damaged supply, and stoked demand.

Three years of record crops followed, creating a cooling effect on prices, said Keith Alverson, president of the South Dakota Corn Growers Association. Abundance eased the world’s hunger for corn. Supply keeps soaring, and demand has yet to catch up.

Price fluctuations are part of farming. And South Dakota’s low jobless rate continues to be a strong indicator of economic health, regardless of the price tag on a bushel of corn. The state’s non-farm income increased in 2015 and was projected to grow in each of the next three years.

Ultimately, though, the price of corn sets the pace for the local economy, and no one knows when it will hit bottom or rebound.

Experts think the descent will continue, though nothing is certain.

“It’s really hard to tell,” Allgrunn said. “If we knew for sure, we’d all be placing bets.”

___

Information from: Argus Leader, http://www.argusleader.com

LOAD COMMENTS ()

 

Click to Read More

Click to Hide