It has happened. Farmland prices are falling.

And it's not just a leveling off. According to 227 bankers surveyed by the Chicago Federal Reserve Bank, the average price of top quality farmland is 6 percent lower than it was in the last quarter of 2008. Where is this farmland? The Chicago Fed district includes all of Iowa and Michigan, plus the northern two-thirds of Illinois and Indiana and the southern two-thirds of Wisconsin.

In the heart of Illinois, the price of good farmland, which had risen 8 percent in the 12-month period that ended April 1, dropped by 5 percent in the first quarter of this year. For the balance of the Chicago Fed District in Illinois, the price of good farmland that increased 4 percent in the past year tumbled 4 percent in the first quarter of this year.

If you are asking yourself when the last time farmland prices dropped, the answer is 1985. But there is little likelihood that 1985 is going to return because of numerous factors. That was a time that farm debt was at record high levels. Now, it is at record low levels. And just because land values drop, don't expect a rise in farm bankruptcies that were common in the early 1980s. Just expect buyers to pay less for farmland than they did a year ago.

Ah! Back in the good old days of 2008 when times were good. Corn and soybean prices were pushing higher, and Sloan Implement Co. could not keep enough equipment in stock for farmers lined up at the door to spend some of that commodity cash. What a difference a year makes. Thanks to the sub-prime mortgage meisters and the Wall Street bank bubble, whose ripples have now been felt in lower prices for farmland.

The Chicago Fed says the number of farms sold, the acreage sold and the unsold farmland on the market are all below last year's levels. And nearly a third of the bankers surveyed by the Chicago Fed expect the trend to continue. Interestingly though, two-thirds expect the value of land to stabilize. Such a trend is a parallel reflection of the grain market, with a slight delay built into it.

When grain prices took off in late 2006, they climbed until midyear in 2008 and fell back to a point of about two-thirds of the level it had been. They have been on a seasonal climb from that point but essentially stabilized at a level higher than what had been seen prior to the climb. Since land costs are repaid from grain income, land prices will be following grain to a large extent.

The place where everyone is going to get pinched is in the cash rent market. Although land prices have softened, cash rent is 7 percent higher in 2009 than it was in 2008, considering the Chicago Fed District. Mark it up 8 percent in Illinois and Iowa, but only 2 percent higher for Wisconsin. The problem for farmers is that many of them had to sign leases last fall reflecting last year's higher commodity prices. Now, it will be harder to pay those rental rates with lower values for corn and soybeans. Even the Fed makes that conclusion, quoting bankers as saying farm incomes were unlikely to be above break-even levels in 2009.

All of this is contingent upon farmers being the primary buyers of farmland, and they are the dominant group, since nonfarm-based investors are more concerned about Wall Street than Main Street.