There's good news and bad news for Iowa Republicans.

The bad news is that Rep. Cooper Evans (R) of Grundy Center announced yesterday that he won't run for a fourth term. Evans, a farmer and former commodities trader, has expressed interest in being secretary of agriculture or in the No. 2 job of deputy secretary.

The seat is potentially vulnerable although Evans received increasingly large margins. He first won in 1980 with 51 percent of the vote but got 61 percent in 1984. The district's voter registration is about one-third Republican, one-third Democrat and one-third independent, and it has Democratic strongholds in Waterloo and Iowa City.

The good news for Republicans is that Gov. Terry E. Branstad appears to be an increasing favorite in the gubernatorial race.

The Iowa Poll gave him a 65 percent job approval rating last October, a healthy improvement, and political observers say that Branstad's popularity has been increasing since then. This is primarily because Branstad, following the lead of Sen. Charles E. Grassley (R-Iowa), has managed to distance himself from President Reagan's farm policies and because his proposed reorganization of state government is popular.

Branstad has raised nearly $700,000 compared to about $100,000 for state Sen. Lowell Junkins and $40,000 for Lt. Gov. Robert Anderson, his Democratic challengers.

"The Iowa political story of 1985 is the resurrection of Terry Branstad," says former Democratic state chairman David Nagle, but Iowa Republicans are keeping a nervous eye on the farm crisis.

It's beginning to hit small town Main Streets as more and more businesses are going bankrupt along with their farmer customers. The small towns are the backbone of the GOP in Iowa.