Bad news for Midwestern banks: farmers losing borrowing power.

Despite the banner harvests they brought to market in 1992, midwestern farmers have less borrowing power this year than last, according to a recent Federal Reserve survey of agricultural bankers.

Farmland values have posted a modest increase so far this year but still are declining in inflation-adjusted terms, the survey found.

The Federal Reserve Bank of Chicago asked 430 ag bankers about land values in their service areas.

The respondents, almost all of them community bankers, said the increase in not keeping up with inflation. And that spells trouble for the hundreds of midwestern bankers who rely on farmers for most of their business.

Local Exceptions

The April survey shows that farmland values in the Seventh Federal Reserve District increased by a mere 1% percent during the first quarter - compared with an inflation rate of roughly 2.8%.

Northern Indiana farmland posted a 3% increase in value, the highest among the five states in the district.

Northern Illinois farm values were up 2%, while Iowa, southern Wisconsin, and eastern Michigan posted little or no change.

"Once you adjust those figures for inflation, you see we've probably had a decline in farm values over the past 10 to 12 years," said Howard Turk, president of the Union Bank, Blair, Wis.

Continuing Worries

Mike A. Singer, agricultural economist at the Chicago Fed, said farmers have still not completely recovered from the crises of the mid-1980's as worries about the future of the industry linger.

"Farmers are facing a lot of uncertainty, and they still have bitter memories of what happened in the 1980s," said Mr. Singer.

Among farmers' worries are the continuing recessions in many export markets, the possibility of a federal energy tax in the President's budget bill, and uncertainty about the North American Free Trade Agreement and the proposed worldwide trade pact.

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