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, according to an agricultural real estate and farm management company which has sold more than $1.2 billion in real estate over the last four years.

“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 certificates of deposit (CDs).”

While demand rose sharply during the last quarter of 2010, the supply of available farmland fell to historically low levels.

The best deals for the money appear to be in the Mid-South, according to the company. Here’s a closer look by region:

Arkansas, Mississippi and Tennessee

According to Keith Morris, area sales manager for Farmers National Company in Tennessee, Mississippi, Arkansas, Alabama, western Kentucky, Louisiana, and southern Missouri, the southern region presents some great opportunities for investment.

 “If you’re looking for good buys and values on all types of properties, the South is where to look,” said Morris. “Even though high grade precision leveled farmland is hard to find, you can still buy it for $3,000 to $3,500 per acre. Some high grade cotton ground, with class one soils, has moved up a little higher with some reports of over $4,000 being paid per acre. That was expected, based on record cotton prices.”

Less than optimum farmland is going for $2,300 to $2,800 per acre in most locations, said Morris. He reports that recreational buyers in this region can get a bargain. “On some rural properties that have been harvested for timber, you can find buys under $1,000 per acre. However, most recreational properties range from $1,400 to the low $2,000 range throughout the region. I don’t think the price will continue to drop, as buyers are starting to look again for that special weekend spot.” The market for loans for these types of properties has tightened, he added.

Prices for top land are averaging $3,250 per acre in Arkansas, $3,000 per acre in Tennessee and $3,500 per acre in Mississippi.

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. 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.”

Colorado, Kansas, South Dakota, Central/Western Nebraska and Wyoming

The western region of the farm belt is currently seeing more of a demand for quality land than ever before, reported J.D. Maxson, area sales manager for Farmers National Company in Colorado, Kansas, South Dakota, central-western Nebraska and Wyoming. “With the volatility of the stock market and CD rates historically low, I’m not looking for a farmland market correction any time soon,” Maxson said.

“In my opinion, investors will continue to look at land as a hedge against inflation and a sound investment tool with a proven rate of return. Our clients’ lack of confidence in the financial markets, along with the current CD and interest rates, is reducing motivation to put retirement funds on deposit.”

Buyer demand for high-quality property continues to increase as sellers’ inventory continues to shrink. According to Maxson, recent land auctions have been well attended with active bidding at 10 to 15 percent above market value. Local owner/operators are winning the bulk of the bidding.

High commodity prices and continued global demand for protein are currently driving the market, according to Maxson. “Land prices show a definite variation with location and quality as key indicators.”

Sale prices of irrigated cropland throughout central, eastern and western Nebraska vary greatly depending on access, location and water, according to Maxson. For example, wet pivot acres range from $2,500 per acre in western Nebraska to $6,000 — $6,500 per acre in central and east central Nebraska. At a recent land auction property sold at more than $8,000 per acre.

Looking at western Nebraska, prices range from $500 — $650 per acre for average cropland to $1,850 per acre for land in the east river area of South Dakota, with irrigated land in southeastern South Dakota averaging $6,500 per acre, said Maxson.

Illinois, Indiana and Ohio

There has been a sharp increase in land transfers in the eastern region of the farm belt late in 2010 reports Roger Hayworth, area sales manager for Farmers National Company in Illinois, Indiana, Ohio, Michigan, eastern Kentucky, and eastern Missouri. Strong commodity prices, historically low interest rates, a profitable harvest and other factors have driven land prices up as much as $500 per acre during the last quarter in some areas.

Prices in Illinois, for example, are coming in at $7,000 per acre on average for high-quality land, and as high as $8,750 in certain parts of the state. Mid- to lower-quality property is selling at $4,500 per acre. Values in Indiana are up to $7,500 per acre, while those in Ohio are up to $6,300 per acre.

“We have seen record values in pocket areas, with aggressive activity on high-quality soils,” said Hayworth. “The sale of mid level quality properties has also remained steady with some increase, while low-quality and recreational land has been stagnant at best.”

Desire for quality land has boosted activity at land auctions as potential buyers become increasingly competitive. “We have seen attendance rise at auctions, with buyers determined to purchase,” said Hayworth. “If the land meets their needs as far as soil quality and location, they become very competitive to get what they want.”