Public Relations  >  News Center  >  News Releases  >  April, 2014  >  April 17, 2014  >  Rural Mainstreet Economy for April Strengthens: Regulations Sink Rural Home Lending
Rural Mainstreet Economy for April Strengthens: Regulations Sink Rural Home Lending

April Survey Results at a Glance:

• Rural Mainstreet Index rises for a second straight month indicating modest growth for the month.
• Bank CEOs estimated a $4.30 per bushel break-even price for corn.
• Approximately one-fourth of bankers reported that due to greater regulation, they no longer make owner-occupied home loans.
• A significant number of bankers reported that their bank would discontinue making residential real estate loans.

After moving below growth neutral in February, the Rural Mainstreet economy has moved above the 50.0 threshold for two straight months according to today’s April survey of bank CEOs in a 10-state area.   

Overall:  The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, increased to 53.2 from 50.1 in March and 48.4 in February.

“The overall index for the Rural Mainstreet Economy indicates that the areas of the nation highly dependent on agriculture and energy are experiencing much slower growth than for the same period in 2013.  However, recent boosts to agriculture commodity prices should boost the economy in the months ahead,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University Heider College of Business. 

This month bankers were asked to name the biggest challenge for farmers for this year’s planting season.  Almost one-third, or 31.5 percent reported that low agriculture-commodity prices were the greatest threat to farming profitability. Approximately 27.8 named lack of adequate moisture and 27.6 indicated high input prices were the biggest challenges for crop farm operations. Another 13.0 percent indicated high cash rents represented the greatest 2014 challenge for crop farmers,”

Farming and ranching
: The farmland and ranchland-price index for April increased slightly to 42.9 from March’s very weak 40.9. “This is the fifth straight month that the farmland and ranchland-price index has moved below growth neutral. With the Federal Reserve continuing to withdraw its economic stimulus, I expect rising interest rates to put even more downward pressures on farmland prices and cash rents,” said Goss. 

Farm equipment sales remained below growth neutral for the 10th straight month. The April index rose to a frail 36.7 from March’s even weaker 29.3. “Agriculture equipment and implement dealers in the agriculture based areas are experiencing very weak sales to farmers in the region even as farm equipment manufacturers are experiencing positive growth due to healthy sales abroad,” said Goss.

This month bankers were also asked to estimate the breakeven price for corn production in their service area.  “Bank CEOs, on average, indicated that the break-even corn price was approximately $4.30 per bushel. This is down from a breakeven price of $4.84 recorded in our February 2013 report,” said Goss.

Jim Ashworth, president of Carlinville National Bank in Carlinville, Ill., said, “Of course, break-even is different for each farmer; yet for mid-Illinois corn we believe our range is $3.75 - $4.25.”

Banking: The loan-volume index advanced to a robust 73.1 from March’s 65.5. The checking-deposit index slipped to 65.1 from 65.5 in March, while the index for certificates of deposit and other savings instruments dipped to 42.0 from March’s 42.5.  

Hiring: Rural Mainstreet businesses continue to hire at a solid pace. The April hiring index advanced to a very healthy 64.0 from 60.0 in March. “While the farm economy slows, businesses on Rural Mainstreet continue to expand their payrolls. Despite growing job additions, Rural Mainstreet employment is still below its pre-recession level,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, expanded to 54.0 from last month’s 47.3. “An improving national economy, higher agriculture commodity prices and passage of the farm bill pushed economic confidence among bankers higher for the month,” said Goss

Home and retail sales: The April home-sales index soared to 63.8 from March’s 51.8. The April retail-sales index rose to 50.0 from 49.2 in March. “Improving weather encouraged an upturn in home purchases and growth in an increase in the retail sales index.” said Goss.  

Bankers were asked if new compliance regulations have caused their bank to no longer make owner -occupied residential real estate loans. More than one-fourth, or 25.4 percent, indicated that their banks were no longer making owner-occupied residential real estate loans as a result of greater regulation.

Furthermore, many other bankers reported that they would likely cease these loans in the future. For example, Dale Leighty, CEO of the First National Bank in Las Animas, Col., reported, “We are considering discontinuing residential loans due to regulations.”

Larry Rogers of the First Bank of Utica in Utica, Neb., indicated the workload and exam requirements associated with greater regulations have become a huge time consumer. Rogers said that the rising regulations would help no one in rural Nebraska.

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included. The survey is supported by a grant from Security State Bank in Ansley, Neb. 

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, former chairman of the Independent Community Banks of America, created the monthly economic survey in 2005.

Colorado: After moving below growth neutral for February, Colorado’s Rural Mainstreet Index (RMI) inched above the 50.0 threshold for two straight months advancing to 54.1 from March’s 50.9. The farmland and ranchland-price index expanded to 50.6 from March’s 43.2. Colorado’s hiring index for April rose to 68.9 from March’s 61.3.   

Illinois: After declining below growth neutral for three consecutive months, the RMI for Illinois in April advanced above the 50.0 threshold, increasing to 53.3 from March’s 49.2. The Illinois farmland-price index rose to 36.2 from March’s 30.6. The state’s new-hiring index improved to 57.4 from 50.7 in March. Dirk Meminger, CEO Sauk Valley Bank in Sterling reported his bank continues to make residential home loans but “regulation has increased costs and impaired the ability to serve local lending needs.”

Iowa: The April RMI for Iowa expanded to 53.5 from March’s 49.8. The farmland-price index for April advanced to 41.4 from March’s 37.6. Iowa’s new-hiring index for April rose to 61.6 from 56.3 in March.

Kansas: The Kansas RMI for April climbed to 53.8 from 50.1 in March. The farmland-price index for April increased to 46.3 from March’s 41.3. The state’s new-hiring index advanced to 65.4 from March’s 59.2. Michael Johnson, CEO of Swedish American Bank in Courtland indicated his bank was continuing to make residential real estate loans, “ If we did not make them there is nowhere else to go for financing in our rural area,” said Johnson.

Minnesota: The April RMI for Minnesota rose to 54.1 from March’s 50.4. Minnesota’s farmland-price index for April increased to 50.0 from March’s 40.3. The new-hiring index expanded to 65.7 from 57.3 in March. Pete Haddeland, CEO of the First National Bank in Mahnomen, said, “Farmland rent prices have peaked and are slowly starting to fall.”  Brian Nicklason, CEO of Woodland Bank in Grand Rapids registered concern about the late spring and its impact on tourism and the resort industry.

Missouri: The April RMI for Missouri increased slightly to 51.3 from March’s 50.9. The farmland-price index for April slumped to 42.3 from March’s 49.7. Missouri’s new-hiring index decreased to 55.5 from 66.0 in March. 
 
Nebraska: For a third straight month, Nebraska’s Rural Mainstreet Index remained below growth neutral. The index improved to 53.0 from March’s 49.5. The farmland-price index for April jumped to 35.8 from March’s 27.7. Nebraska’s new-hiring index climbed to 57.1 from March’s 48.4. Due to rising regulatory costs, David Steffensmeier, president of the First Community Bank in Beemer said, “We have not stopped making owner-occupied home loans completely, but we are questioning the profitability of continuing.”

North Dakota: The North Dakota RMI for April bounced to 59.4 from March’s 52.6. The farmland-price index grew to 64.5 from March’s 58.6. North Dakota’s new-hiring index rose to 80.0 from 73.1 in March.  Jim Goetz, CEO of Security First Bank of North Dakota said, “New home regulations are driving many community banks out of the residential mortgage business.”

South Dakota
:  The April RMI for South Dakota expanded to 53.4 from March’s 49.2. The farmland-price index for April increased to 38.1 from 29.4 in March. South Dakota's new-hiring index for April advanced to 58.9 from March’s 49.7.

Wyoming: The April RMI for Wyoming increased to 53.6 from 49.5 in March. The April farmland and ranchland-price index grew to a weak 40.9 from March’s 33.1. Wyoming’s new-hiring index for April improved to 61.1 from March’s 52.7.