Demand for U.S. farmland has jumped to a five-year high, spurred on by a profitable grain market and a boost in buyer interest from both farm operators and land investors. While demand rose sharply during the last quarter of 2010, the supply of available farmland fell to historically low levels.

"There are a number of factors driving this increasing demand, which we see continuing into 2011," said Lee Vermeer, AFM, vice president of real estate operations at Farmers National Company. "Jumps in commodity prices are increasing profitability of land as an investment. Landowners are using the profits to increase land acquisitions. They are investing in their own operations as land values are stabilizing and in many cases increasing."

Vermeer said that while increasing values are boosting the interest in farmland by investors, farm operators account for 85 percent of buyers.

"Farmland purchases have also become an attractive investment for non-operators in this environment," said Vermeer. "It's definitely showing a more favorable return on investment than traditional investments like the stock market and CDs."

Kansas, Oklahoma, Texas

The land market across the Kansas, Oklahoma and Texas Panhandle farm belt continues to set new highs. Investor interest is increasing, and higher commodity prices have provided fuel for recent record prices.

According to Monty Meusch, area sales manager for Farmers National Company in Kansas, Oklahoma and Texas, during a recent sale of high quality dryland in Clark County, Kansas, there was a lot of presale activity which resulted in a sales price higher than expected.

"Interest before the sale was high from both out of state and local farmers," said Meusch. "While we expected to see prices of $1,200 to $1,400 per acre, the final selling price was $1,730 per acre. The property was sold to a local farmer looking to expand his operation. In addition, a recent sale of irrigated farmland in central Kansas went for more than $4,000 per acre with strong bidding from neighbors and local investors."

Meusch said buyers are paying top dollar for land in his region. The demand for pasture by cattle producers is very strong and should continue into 2011. The only markets that appear off in this region, compared to pre-2008 levels, are the hunting and recreational properties. "With money being tight and a lot of people concerned about jobs, we have seen a definite pull back on the 'fun properties' from central Texas to central Kansas," said Meusch.

Iowa and Minnesota

Prices for quality land are at levels that are high or higher than they have ever been in most of the North Central Region including Iowa, Missouri, Minnesota, South Dakota and North Dakota, according to Sam Kain, area sales manager for Farmers National Company in Iowa and Minnesota. In many areas of Iowa, top quality land is selling in the $8,000 to $9,000 per acre range.

"I would say in some areas of Iowa and Minnesota land values may have jumped as much as $1,000 an acre in the last 60 days, with prices at $6,200 per acre in Minnesota," said Kain. "Demand remains very strong in all areas as there is a limited supply of properties for sale."

Kain added that increased interest from investors is pushing farmland prices upward. However, he said that the majority of the sales are still going to local farmers.

"Land values in this region are likely to continue an upward trend," said Kain. "Commodity prices definitely point upward, but these trends can quickly change as world issues change."