Soybean farmer Raymond Schexnayder Jr. overlooks his farm outside Baton Rouge, in Erwinville, Louisiana, July 9, 2018. Aleksandra Michalska | Reuters

Weak farm income, coupled with reduced spending, has stressed the economy in rural America and led to "adverse" ripple effects on Main Street businesses, according to a new report from the Federal Reserve Bank of Kansas City. "A sharp drop in the price of corn and soybeans contributed to a bleaker view of the [Tenth] District's farm economy in the second quarter," said the KC Fed's Ag Credit Survey released Thursday. "For many agricultural borrowers, cash flow already had been a significant concern, but likely was exacerbated by the recent drop in prices amid ongoing uncertainty surrounding the future for agricultural trade. Chicago soybean futures remain down about 11 percent since China announced on April 4 it would slap a 25 percent tariff on the 106 U.S. products, including American soy. The tariff went into effect July 6 and soybean futures at one point were down more than 20 percent, but they rallied starting in mid-July but in recent sessions have struggled amid the escalating U.S.-China trade battle.

"We can't even think about buying a new piece of new equipment because it could tip the scale to where we wouldn't be insolvent," said Jeff Fisher, a soybean and corn grower in Champaign County, Ill. He said soybean prices at current levels are essentially break-even. This is happening as farm input costs remain high for everything from seed and fertilizer to herbicides and fuel. Last month, the U.S. Department of Agriculture unveiled a $12 billion emergency plan to help farmers impacted by retaliatory tariffs. "Don't get me wrong, $12 billion is a lot of money, but it's only a little band-aid," Fisher said. "What we really want is to trade, buy and sell products and have a free market system that doesn't need anything like that."

Struggles in Nebraska, Kansas and Missouri

The Kansas City Fed's report said pain in the agricultural economy was having "an adverse effect on Main Street business activity" throughout the seven-state district, although indicating the impact was most felt in Nebraska, Kansas and western Missouri. The 10th District includes Kansas, Nebraska, Oklahoma, Wyoming, Colorado and portions of Missouri and New Mexico. "We have been observing that the rural economy has been weaker than the rest of the non-rural economy elsewhere," said economist Nathan Kauffman, vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. "Some of that does tie back to lower commodities. It was energy before, but it's been ag for longer." The economist said a significant part of the weakness lately has been due to trade-related concerns. "A lot of the comments that we hear from businesses have the word 'uncertainty' in them," Kauffman said. The Kansas City Fed survey also found that farm incomes are likely "to remain subdued" in the coming months and "could be exacerbated in states more heavily concentrated in commodities - such as soybeans - that have been targeted by retaliatory tariffs."

Bad news from the Chicago Fed, too

Separately, the Federal Reserve Bank of Chicago said Thursday in its Ag Letter that the "profitability of corn and soybean farmers took a hit in the second quarter." It also said agricultural credit conditions in the five-state district "deteriorated" in the second quarter compared with a year ago. According to the Chicago Fed, the portion of agricultural-related loans having repayment problems in the quarter jumped from a year ago and reached "mid-year levels not seen since 2002." At the same time, the Chicago Fed reported that Illinois showed signs of a year-over-year decline in farmland values, but other areas of the district fared better. The five-state Seventh District includes portions of Illinois, Indiana, Wisconsin, Michigan, and the state of Iowa. In the 10th District, there were declines of 4 percent in irrigated farmland value in the second quarter compared with a year ago, although Nebraska fared worse with a 7 percent drop due to pressure from the slump in corn and soybean prices. The report said Oklahoma's farmland values were up 4 percent, reflecting strong cotton markets.

Slight declines is what a lot of people are expecting to see in the next year or so, of course, depending on what happens with all the uncertainty on trade. Nathan Kauffman Federal Reserve Bank of Kansas City

"Farmland values is sort of what everything hinges on in terms of a lot of the challenges and how severe they become," Kauffman said. "Slight declines is what a lot of people are expecting to see in the next year or so, of course, depending on what happens with all the uncertainty on trade." Besides soybeans, retaliatory tariffs from China have targeted other major farm commodities, including corn, wheat, sorghum, pork and beef. The punitive tariffs by Beijing have meant China is likely to buy more of its soybeans from South America but some believe the Chinese can't completely avoid buying U.S. beans since Brazil's supplies slow to a trickle by the end of the year. China buys roughly half of the U.S. soybean exports, and roughly one in three rows of soybeans grown on the nation's farms goes to the world's second-largest economy, according to the American Soybean Association. The lion's share of the U.S. agribusiness trade to China involves soybeans, which are grown primarily in heartland states such as Iowa, Illinois, Minnesota, Nebraska, Indiana, Missouri, Ohio and the Dakotas.

WATCH: Farmers stand by Trump