UPDATE 2-U.S. farm incomes fall in 1st qtr; trade war remains top risk to agricultural economy -Fed banks

(Adds details from Chicago Fed Bank survey)

CHICAGO, May 9 (Reuters) - U.S. farm incomes in the Midwest and Mid-Southern states declined yet again in the first quarter of 2019 amid ongoing strain from low commodity prices, trade uncertainty and severe weather, according to banker surveys released on Thursday by the Federal Reserve Banks of St. Louis and Kansas City.

Most bankers said one of the biggest risks to the farm economy this year remained the trade fight between the United States and China.

It marked the 21st consecutive quarter for farm incomes dropping in the Eighth Federal Reserve District, which includes all or parts of seven Midwest and Mid-South states: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

“Farmers are running out of capital,” one Arkansas banker told the St. Louis Fed, according to the survey. “Commodity prices are too low for input costs and rents (and) land payments.”

Agricultural credit conditions also deteriorated during the first quarter of 2019 in parts of Illinois, Indiana, Wisconsin, Michigan and Iowa, according to a banker survey report released on Thursday afternoon by the Federal Reserve Bank of Chicago.

Repayment rates for non-real estate farm loans - such as loans farmers would take to pay for operational costs - were lower than a year ago, and renewals and extensions of such loans were higher, according to the report.

Bankers surveyed by the Kansas City Fed said farm incomes fell most sharply in Nebraska and Missouri - both states heavily concentrated in corn and soybean production, and both affected in areas by heavy spring flooding.

The Tenth District of the Federal Reserve includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming and portions of western Missouri and northern New Mexico.

“Major flooding and blizzards across some regions in the District late in the first quarter may also put additional financial pressures on some farm borrowers as damages continue to be assessed,” said economist Nathan Kauffman, vice president of the Kansas City Fed.

As farm income remained low in both districts, bankers said demand for farm loans stayed strong and the ability of farm borrowers to repay loans weakened at a slightly faster pace than in previous quarters.

The agricultural surveys also disclosed that interest rates had increased across loan types - meaning that it is costing farmers more to run their operations, pay for seeds and chemicals to produce their crops or fix their machinery. (Reporting by P.J. Huffstutter in Chicago; Editing by Matthew Lewis and Peter Cooney)