Have you heard the one about the rising farmland values?

Well, you need to hear this story again.

Dean Borg, a reporter at Iowa Public Radio, was on hand recently for the auction of a 146-acre farm in northern Iowa that had been in the same family for more than 120 years. Competing bidders — in this case, neighbors — drove up the price to a record for the successful auctioneer. Click here to listen to the story, titled "Inside a farm auction."

The purchaser paid more than he liked — but that’s a common occurrence these days. Check out this realtors survey, which documents a remarkable surge in estimated land values in Iowa between March and September of 2011. Iowa State University, meanwhile, estimates that the average value of farmland in Iowa jumped more than 32 percent in 2011. (See graphic.)

This is not just an Iowa phenomenon, of course. The Federal Reserve notes that cropland values across the Corn Belt and northern Plains soared to all-time highs in the third quarter of 2011, with many states posting annual value gains between 20 percent and 40 percent. The Fed is spending a lot of time tracking the situation and pondering whether we’re looking at a bubble or not. This PowerPoint presentation from the Kansas City Fed presents a historical perspective that is quite fascinating. The conclusions:

  • Agriculture appears to be in another farm boom.
  • Rising export activity, a low U.S. dollar, and low interest rates are fueling the boom.
  • Going forward, agriculture faces many risks.
  • The striking difference is farm debt.

Yes, farm debt. As in … farmers aren’t carrying a lot of debt, when you consider the situation in past land price booms.

But then there’s this analysis in a recent Bloomberg News article that appeared on the web site of Investment News, “Investors plowing money into farmland — but could come a cropper.”  It points out the strong competition among bankers for farm-related loans, and outlines the growing market share of the Farm Credit System:

Farmers are taking advantage of a resurgence in government-chartered credit providers and Federal Reserve efforts to stoke the economy by holding the fed funds rate near zero. Competition from private lenders such as MetLife Inc. and Wells Fargo & Co. is keeping borrowing costs near record lows as the value of farmland in the third quarter rose as much as 25 percent in the U.S. Midwest, driven by surging sales of corn to ethanol producers and grain exports.

“We're seeing very aggressive activity by the Farm Credit System and commercial banks,” Jason Henderson, vice president and Omaha, Nebraska branch executive at the Federal Reserve Bank of Kansas City, said in a telephone interview. “Everyone is battling for market share.”

The Farm Credit System, created by Congress in 1916, increased its share of lending in the $136 billion farm real-estate market to 45 percent from 41.5 percent in 2007 and 35 percent in 2000, according to U.S. Department of Agriculture data.

The network is made up of banks and 83 associations owned by farmers and funded by bond sales, according to Bloomberg. And it has won business by cutting rates and paying dividends to borrowers.

Is that good debt for farmers?  Time will almost certainly tell.