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WASHINGTON, May 29 (Reuters) - A U.S. banking regulator on Wednesday said it was seeing trouble in the farm sector as commodity prices fall and that some banks were reporting a deterioration in the quality of their agricultural loans during the first three months on the year.
"We are seeing some emerging strain," Diane Ellis, the director of the insurance and research division at the Federal Deposit Insurance Corporation, said at a news briefing. "Mostly it affects our community banks in the middle of the country."
In a quarterly report on the health of U.S. banks, the FDIC said the share of agricultural loans at community banks that were at least 90 days past due or in non-accrual status rose to 1.28% in the first quarter, the highest level since the third quarter of 2011.
Ellis said strain has been building for years in the farm sector as commodity prices have fallen. Ellis noted that farm incomes were about half their levels from six years ago.
Commodity prices have also been hit over the last year by a U.S.-China trade war which has sparked higher Chinese tariffs on U.S. agricultural exports.
China is a top buyer of U.S. soybeans, the nations most valuable agricultural export, and it has dramatically reduced its purchases. (Reporting by Jason Lange Editing by Chizu Nomiyama and Susan Thomas)