The Rural Mainstreet Index moved to its lowest level in more than four years, according to the October survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. The index has been trending lower since June 2013 when the reading stood at 60.5.  

Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, rose to growth neutral, 50.0, up from 43.4 in October. 

“Even though the overall index rose sharply, low grain and energy prices continue to restrain the rural economy,” said Ernie Goss, Ph.D., Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business.

Higher input costs and lower crop prices are squeezing farm profitability across the region.  According to Jim Ashworth, president of CNB Bank Shares of Carlinville, Ill.: ”Some landlords acknowledge that all grain input costs are increasing. If grain prices can't sustain costs, something will have to give.”

Farming and ranching: The farmland and ranchland-price index for November advanced to a very weak 30.0 from October’s record low 20.2. “Much weaker crop prices continue to take the air out of the bubble in agriculture land prices. This is the 12th straight month that the index has moved below growth neutral,” said Goss. 

The November farm-equipment sales index expanded to 18.6 from October’s record low 15.1. The index has been below growth neutral for 16 straight months. “As a result of the more than 30 percent decline in crop prices, farmers continue to reduce their purchases of agriculture equipment,” said Goss.

Banking: The November loan-volume index dropped to 56.2 from 71.7 in October.  The checking-deposit index expanded to 57.9 from October’s 49.1, while the index for certificates of deposit and other savings instruments sank to a very weak 37.7, from last month’s 40.4.

This month, bank CEOs were asked several questions regarding the banking regulatory environment. On average, bankers reported a 29.4 percent increase in regulatory compliance costs since the passage of the Dodd-Frank bill. Approximately 10.5 percent of bank CEOs indicated that new compliance regulations had caused their bank to reduce or no longer make agriculture or business loans.

Almost one-third, or 31.0 percent, of bankers reported that the lack of demand from potential borrowers was limiting bank lending in their area. 

Jim Eckert, president of Anchor State Bank in Anchor, Ill. said, “Constant changes and more restrictive regulations (particularly since Dodd-Frank passed) on 1-4 family residential real estate loans have forced our small bank to exit the residential real estate market.”

However, Pete Haddeland, CEO of the First National Bank in Mahnomen, Minn., said, “Our loans are up 20 percent from last year. You just have to look for them.”

Larry Winum, president of Glenwood State Bank in Glenwood, Iowa, said, “I am hopeful with the recent election that our new leaders will  make the necessary regulatory changes that are  necessary to Dodd-Frank and other banking regulations that will make it easier for community banks to lend to their customers.”

Hiring: Despite weaker crop prices and pullbacks from businesses with close ties to agriculture, rural Mainstreet businesses continue to hire at a solid pace.  The November hiring index climbed to a healthy 61.9 from October’s 55.7. “Businesses on Rural Mainstreet continue to add jobs at a healthy pace even with the weaker agriculture conditions.  Year-over-year job growth for the region is now approximately 2.1 percent, which is well above the historic average,” said Goss.

Even in areas of high unemployment, bankers report shortages of workers. As detailed by Brian Nicklason, president of Woodland Bank in Remer, Minn,  “The Iron Range in NE Minnesota is looking for multiple positions and cannot find qualified individuals. We recently have had difficulties finding applicants for beginning tellers.”

Confidence: The confidence index, which reflects expectations for the economy six months out, rose to a weak 44.7 from 34.6 in September. “Much weaker crop prices have negatively affected the outlook of bank CEOs over the last several months,” reported Goss.

Home and retail sales: The November home-sales index grew to a tepid 51.0 from October’s 49.0. The November retail sales index rebounded to 50.0 from 44.4 in October.  “Weak crop prices are weighing on retail trade,” said Goss.