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(Reuters) - The price of prime farmland in the drought-hit U.S. Midwest grain belt rose 1 percent in the second quarter, the smallest quarterly increase in two years, the Federal Reserve Bank of Chicago said Thursday.

But while the district's worst drought in nearly a quarter century will dramatically shrink soybean and corn output, land values this quarter were not expected to fall, the Fed said in its quarterly survey of 205 bankers in the district.

The Chicago Fed district includes the heart of the U.S. Corn Belt states of Iowa, Illinois and Indiana, and parts of Wisconsin and Michigan.

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