Agricultural banks -- whose farm customers have been buffeted by low prices, high interest rates and declining land values for four years or more -- are feeling more pressure than at any time since the Great Depression.

The worst problems today appear to be concentrated in the heartland of the country -- the corn-and-soybean belt of the fertile and not-so-fertile Midwest. There, prices have remained low for years, there is little diversity and many farmers expanded and took on large amounts of debt in the 1970s, counting on strong export markets and continuing inflation.

William McD. Herr, a professor at Southern Illinois University, said that about 60 percent of the roughly 900 agricultural banks he surveyed reported a decline in the quality of their loan portfolio over the last year. Only 12 percent reported that the loan portfolios are sounder, while the rest reported no change.

Herr's survey showed that agricultural bankers cut off 3.4 percent of their farm borrowers in the year ended July 1984 and expect to discontinue another 3.1 percent by the middle of 1985.

Farm banks -- defined as those with 25 percent of their loans in agriculture -- tend to be heavily capitalized and able to absorb large loan losses. They used to fail less frequently than nonfarm banks. That is changing.

Delinquent loans at farm banks with less than $500 million in assets were 5.5 percent of total assets on June 30, compared with 4.7 percent the year before, according to the Federal Reserve Board. Among nonfarm banks of the same size, problems loans fell to 4.3 percent of assets from 4.9 percent during the same period. Loan chargeoffs at those agricultural banks are nearly twice those of nonfarm institutions.

Continuing problems among farmers are taking their toll on farm lenders.

Farm banks make up nearly 30 percent of the nation's 14,700 banks. In the first five months of 1984 they accounted for 13 percent of the 31 bank failures.

Of the 27 banks that failed between June 1 and Sept. 30, however, 10 -- or 37 percent -- were farm banks. Another four of the failed banks had more than 20 percent of their loans to farmers. Regulators say privately that more farm banks are going to go down the tubes in the months ahead.

As these pressures continue, farmers will be facing two key realities, according to many of the bankers gathered here recently for the American Bankers Association's annual agricultural conference:

*Many farmers are not going to be saved by the proverbial good year.

Farmers complain that the solution to their problems is higher farm prices. "We just can't maintain a cheap food policy," said Myron J. Nelson, who raises corn and soybeans near Newman Grove, Neb.

But Timothy R. Taylor, president of First of America Bank in Holland, Mich., said that low prices -- at least far lower than farmers want -- appear to be a reality they must learn to cope with or be forced out of business.

*Second, the farmers who survive the 1980s will have to be more than efficient producers. They will have to be financiers and marketing specialists as well.

Too few farmers really understand their own costs of production or how to minimize their losses or maximize their profits, said John C. Gamble, agricultural economist for First Alabama Bancshares in Montgomery, Ala. Although no farmer can dictate the price he receives for his crops on the day he sells them, prices fluctuate wildly during a season. By selling when prices reach a target level, rather than waiting for a possible never-to-come higher price, farmers can be far more in control of their financial situation.

"There's too much emotion in pricing," Gamble said. "For too many farmers, their marketing strategy is to sell for a nickel more than the current price. Are we pricing for profit or for bragging rights?"

Some of the impending farm bank failures may spell disasters for individual farm communities, but the problems among farm banks do not pose an immediate danger to the nation's financial structure.

"Every farm bank in Iowa could fold this month and there wouldn't be anything even near the threat that the failure of Continental Illinois posed," said one farm banker.

Furthermore, although bankers, farmers and the Reagan administration are concerned about the mounting farm bankruptcies and liquidations, the hard times are not universal. "We've got to realize that not everyone is in trouble," Gamble said.

"I don't want to play down the severity [of the farm problem], but it's not the debacle" that some claim, added Michael E. Fitch, vice president of California's giant Wells Fargo Bank.

Some areas seem to have weathered their problems.

"In the Southeast, the worst is over. . . .Our agricultural portfolio is in the best shape in the seven years I've been at the bank," said First Alabama's Gamble.

Craig L. Cosner, executive vice president of the First National Bank in Tucumcari, N.M., said there will be further consolidations of farming operations. "But our portfolio is in good shape. For the first time in five years we have no legal actions or bankruptcies. For the majority of the farmers it's a break-even situation."

Floyd T. Hensley Jr., chairman of the Taylor County Bank of Campbellsville, Ky., said there are a limited number of problems among the tobacco, corn, wheat, barley, dairy and livestock farmers in central Kentucky. But he said home builders present more of a threat to his loan portfolio than farmers.

In the Pacific Northwest, the white wheat is piling up unsold and dairy farmers are under pressure, but most other cash crops, including apples, are doing well, said Robert H. Matthews, senior vice president of the Ranier National Bank in Seattle.

"The prospects for repayment are good," he said. "We've had our ups and downs in Washington," but never the kinds of shakeouts" that are expected in the heartland -- Illinois, Indiana, Iowa, southern Minnesota, Nebraska, Missouri and Kansas.

Smaller banks are more vulnerable, especially those with 50 or 60 percent of their portfolios concentrated in farm lending, Matthews said. In the heartland, the granary of America, it is difficult for banks to diversify.

Even a loan to a retailer is an indirect agricultural loan. If the farmers don't buy televisions, tractors or whatever, the retail loan is bad, too.

Leslie Peterson, president of the Farmers State Bank in Trimont, Minn., is in the heart of the problem. He estimated that in his state as many as 10 percent of the farm operators are not going to make it, although it may take two or three years for it to happen.

He said bankers now are sorting out the 5 percent or so hopeless cases and trying to work with the farmers on liquidating -- in a manner that will generate the maximum amount of return for both the banks and the farmers.

Already, bankers said, many farmers and their bank lenders waited too long to sell out. To many farmers, agriculture is not only a business but also a way of life. As a result, many have held out, hoping for better times.

But because of the decline in the value of land -- the store of wealth in agricultural America -- many farmers who could have sold out at a profit even a year ago today cannot realize enough from the sale of their land and equipment to pay their debtors.

How much a farmer is in debt is often the key to whether he is holding his own or running backwards, said Alan R. Tubbs, president of the First Central State Bank in Dewitt, Iowa, and president of the ABA agricultural conference.

Historically, he said, farmers receive a return of about 3 1/2 percent on their investments. A farmer with $1 million in assets will have a return of about $35,000 before he pays interest on his debts. If the farmer is carrying a debt of $500,000 at 12 percent average interest, he faces an interest payment of $60,000 a year.

If he can cut his debt load to 30 percent, his interest bill declines to $36,000. At that point, the farmer has a chance, Tubbs said.

But assets that were worth $1 million a few years ago may be worth as much as 30 to 40 percent less today. The farmer might have to sell so much land to reduce the debt burden that the farming operation becomes uneconomic.

Many farm bankers are little more sophisticated financially than their farmer customers, although that is changing.

Like their farm customers, until recently farm bankers were not expected to have more esoteric financial skills. The cost of deposits was low and predictable; inflation was low; farm debt was not excessive, and returns were reasonably constant. The banker could tack a profit margin on the bank's cost of money, loan the funds to the farmer in the spring and make enough when the crop came in the next fall to cover minimal customer losses and still make a profit.

Although a number of farm banks still are unsophisticated, many are adding better-trained lending officers, adding computer analysis and sending current officers off for further financial training.

Peterson, of Minnesota's Farmers State Bank, said farm bankers are going to have to make their farm customers learn the kinds of skills farmers will need to survive financially, including when to sell their crops.

At some point during the crop season, a price is reached for virtually every commodity that will guarantee a profit for 75 percent of the farms, Peterson said. But too many farmers fail to sell.

For example, he said, last year three of his customers put their soybeans in storage and received a $4.90-a-bushel loan from the government -- in essence, a price floor. When the loans mature, the farmers can either leave the beans, keeping the proceeds of the loan, or repay the loan and regain control of the beans. Farmers can repay the loans at any time to sell their crop.

At one point in 1983, bean prices reached $9 a bushel. As recently as June, Peterson said, the price was $8.40. But the farmers did not sell, and by September, when the loan came due, bean prices were down to $5.80. They wanted to borrow enough money from Peterson to pay off the loan and hope prices rose again. Peterson said he had to turn them down