(Dow Jones) -- Farmland values slid sharply in parts of the Midwest in the first quarter of the year and agricultural conditions also worsened, according to reports Thursday from two Federal Reserve Banks.
The St. Louis Fed said the average price of "quality" farmland in its district dropped 6.4% in the quarter from a year earlier, the biggest decline since the survey began in 2012.
The region includes part of the U.S. agricultural heartland in Illinois, Indiana and Missouri and continues the decline following a boom that triggered big increases in land values when corn and soybean prices peaked earlier in the decade.
Declines in the Kansas City Fed's district, which includes Kansas and Nebraska, were less pronounced, but the bank said prices for nonirrigated and irrigated cropland fell 4% and 2%, respectively. Irrigated farmland is widespread in the region, drawing moisture from man-made water systems rather than rainfall.
The reports show how the U.S. farmland market has cooled alongside commodity prices and farm incomes.
For the past three years, U.S. growers have harvested bumper crops, piling onto generous global stockpiles, while a strong dollar and growing global export competition recently stymied demand for U.S. supplies.
Though some agricultural markets have rallied in recent months, prices for corn and wheat are still more than 50% lower than their 2012 peak, and the U.S. Department of Agriculture has projected that net U.S. farm income will fall this year to the lowest in more than a decade.
Agricultural lenders surveyed by the Kansas City and St. Louis Feds said farm income fell in the first quarter of 2016, and many expect land values to decline further as farm incomes remain under pressure.
Lenders in the Kansas City Fed district said financial conditions continued to erode for farmers in the first quarter, with demand for farm loans at agricultural banks climbing while repayment rates deteriorated.
The bank said weaker credit conditions come as many growers are unable to pay off loans extended to them in the previous year, forcing them to carry debt into 2016.
Loan-repayment rates declined for the 10th consecutive quarter, which the bank said was the longest run of deteriorating repayment rates since the early 2000s.
The Kansas City Fed noted "a heightened sense of risk in farm sector lending," and said bankers in the district had increased the amount of cropland required from farmers as collateral during the first quarter. While farm loan delinquency rates remained low, growers with significant debt may face ongoing stress, it said.
"This most recent uptick in loan demand may be more concerning because it has coincided with a period of falling repayment rates, softening farmland values and increasing collateral requirements," the bank said in its quarterly report on agricultural credit conditions.
The average values for ranchland used to graze livestock was largely unchanged in both districts during the quarter.