Farmland prices in the U.S. Corn Belt and central Plains were mostly steady in the third quarter, but weakness was likely before year-end as farmers absorb the impact of 5-year lows in grain prices, regional Federal Reserve banks said on Thursday.

"The downturn in crop prices of the past two years finally extinguished the trend of rising farmland values that had prevailed in the District since the fourth quarter of 2009," the Federal Reserve Bank of Chicago said, reporting land prices fell 2 percent from the second quarter but were unchanged from a year ago.

"Declines from a year ago in 'good' agricultural land values for Illinois and Iowa were offset by increases for Indiana and Michigan; meanwhile, Wisconsin farmland values remained the same," the bank said in its survey of 224 district lenders.

A Kansas City Federal Reserve survey reported similar trends, with crop land values down slightly from the second quarter but 1 to 2 percent above a year ago. Range land prices rose, however, reflecting the recovery in livestock markets due to record high cattle prices.

"Farmland values have stopped rising in the Midwest and in pockets are decreasing. Even with the big harvest, farm income will be down this year," David Oppedahl, Chicago Fed economist, told Reuters.

Farmland prices are closely watched by Fed policymakers, bankers and farm suppliers since land is the basic collateral for most farm loans.

Since 2010, grain land prices had set record highs on booming demand for biofuels and exports. The drop in grain prices, particularly corn, after a second straight record crop has revived some worries of a "farmland bubble" popping.

Oppedahl said various factors, including the strong financial position of big farmers, made that unlikely.

"I don't think long-term we're going to have a major decline," Oppedahl said. "There are a lot factors underpinning agriculture. We're out of the boom. Hopefully, there won't be a bust."

Upcoming land auctions will be closely watched. Farmers whose finances are too stressed may boost the amount of land up for sale. Most bankers expect land prices to ease, but few expect a self-defeating rush of land sales.

"Forty-nine percent of the responding bankers predicted a decrease in the volume of farmland transfers relative to the fall and winter of a year ago, while only 11 percent predicted an increase," the Chicago Fed said.