Farm income expectations in key Midwestern states for the third quarter have been badly dented by the harsh drought, according to a report released by the Federal Reserve Bank of St. Louis on Thursday.
Crops have been stunted by withering heat across the U.S. heartland, with corn and soybean yields hit hard. Hay and cattle farming have also suffered significantly.
Based on an Agricultural Finance Monitor survey of 88 agricultural banks in its district, with the exception of the Memphis, Tennessee, region, the St. Louis Fed's measure of farm income expectations slumped to 81 in the third quarter of 2012, versus 140 in the same period last year.
Readings above 100 represent higher lender expectations and readings under that threshold signal diminished expectations.
Farm land prices, however, appeared to be holding up, the St. Louis Fed said in a statement.
In Memphis's part of Tennessee and the northern part of Mississippi, a stronger outlook for the region's cotton, rice and irrigated corn crops boosted hopes for income in the July to September period, the St. Louis Fed said.
Its district spans all or parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
The dimmer outlook for income did not translate into weaker prices for farmland, which was seen holding steady or rising over the next 3 months. Quality farmland averaged $4,075 an acre in the district and ranch or pastureland averaged $2,349/acre, the St. Louis Fed said.