(Reuters) - The value of farmland in the heart of the U.S. grain belt, the world's largest grain exporting region, rose 2 percent in 2009, boosted by a rebound in the fourth quarter, the Federal Reserve Bank of Chicago said on Thursday.

"With a 2 percent annual increase for 2009 in the value of 'good' agricultural land, the District experienced its smallest change in a decade," the Fed said in its quarterly survey of 214 regional bankers.

"Still, this small annual increase, registered for the final quarter of 2009, was better than the year-over-year comparisons for each of the three previous quarters."

The Fed's seventh district stretches across Illinois, Iowa, Indiana, Wisconsin and southern Michigan. Iowa and Illinois alone produce one-third of U.S. corn and soybeans. The United States is the world's biggest exporter of both crops.

The district also is a major producer of wheat, hogs and dairy products.

Land values, the main collateral for most farm loans, are widely watched as an economic gauge.

Indiana and Iowa saw the biggest annual rise in farmland values, up 7 percent and 4 percent, respectively. Michigan farmland fell 6 percent in the year and Wisconsin's 1 percent, partly reflecting weak dairy markets in 2009.

"Midwest agriculture experienced a challenging 2009, especially with a long difficult harvest and losses on livestock throughout most of the year," the Fed said.

"Still, the majority of the farm sector rallied toward the end of 2009," it added.

Bankers reported a higher rate of renewals and extensions of loans in the fourth quarter, reflecting stresses on livestock operations. Credit standards tightened at 44 percent of the reporting banks and collateral requirements increased at 25 percent of the banks, the Fed said.

Interest rates on agricultural loans remained low. As of Jan. 1, average interest rates were 6.23 percent for new operating loans and 6.13 percent on farm real estate loans.

Bankers surveyed expect the same non-real-estate loan volume in the first quarter of 2010 as they saw last year.

Lower volumes were predicted for feeder cattle, dairy, farm machinery, and grain storage construction loans.

Higher volumes were predicted for operating loans and loans guaranteed by the Farm Service Agency.

"Capital expenditures by farmers in 2010 were expected to be lower than in 2009," the Fed report said.

http://www.reuters.com/article/idUSN1824328320100219