Times are very good in Farm Country. Despite weather-delayed plantings and floods in the Corn Belt and Northern Plains and continuing droughts in the Southern Plains, strong demand and continuing tight supplies of most farm commodities have set the stage for record farm profits in 2011 and 2012.

Farm income is forecast to surpass $103 billion this year – 31% above last year and the highest inflation-adjusted level since 1974. This surge comes on top of last year’s 27% income gain.

Optimism over rising profits helped fuel a 9.4% increase in U.S. cropland values through the start of this year – the biggest jump in four years. USDA pegged the average value of cropland at $3,030/acre as of Jan. 1 – a $260 increase over 2010.

In Iowa, the country’s top corn-producing state, cropland values spiked 24%, to an average $5,700/acre. In August, a 153-acre farm in northwest Iowa’s O’Brien County fetched $14,350/acre at auction. The land was located in a “hot zone” of competitive farmers, says Jon Hoogers, of Vander Werff & Associates, Sanborn, which handled the sale. The buyer: an established farmer with two sons intent on expanding their land base.

Corn & Soybean Digestonline readers are universally bullish on farmland’s near-term prospects. A recent poll (see sidebar) shows Corn Belt farmers look for land prices to inflate 5%, while southern farmers look for a modest 1.5% gain. However, southern farmers expect current land-appreciation trends to extend another two years, double the one-year prediction of Corn Belt readers.

While the Midwest has garnered headlines for record auction prices, cropland in the Northern Plains has delivered the strongest capital gains – up 73% since 2006. It’s here – in the Dakotas, Kansas and Nebraska – that the adoption of advanced seed genetics and conservation tillage have allowed corn and soybean production to expand West. At the same time, good harvests have enabled Plains farmers to ride the wave of rising grain prices. USDA estimates that cropland prices rose 19.5% in North Dakota and 18% in Nebraska in 2010. University of Nebraska pegs the state’s farmland-appreciation rate at an even loftier 22% rate for the 12 months through Feb. 1.

The pace of farmland-price inflation steepened through this year’s first half. Land values rose an average 14.8% for the 12 months through July 1, according to a study by AgriBank FCB, the St. Paul, MN, lender that services Farm Credit associations in 15 states across the country’s mid-section. Iowa farm values spiked 36% from a year ago, according to the AgriBank study.

Other hot spots for buyer demand are western Kentucky and southern Indiana, where land values are up 33.5% and 31.9%, respectively, from July a year ago. Agribank’s survey also showed weakness in Wyoming and southern Missouri, where values fell 2.7% and 2.3% from a year ago.

Cropland’s fat returns aren’t being ignored. Though farmers seeking to expand their land base remain the dominant buyers, pension funds, endowments and other institutions are adding agricultural real estate to their investment portfolios. Dan Whitehurst, president of Southern Agricultural Consultants, Tallassee, FL, estimates that institutions purchased $100 million in cropland in the last year across southwest Georgia and northern Florida.

Based on recent fundraising activity and investment mandates, the Farmland Investor Letter looks for non-farmer purchases of farmland to continue to expand. New York retirement fund manager TIAA-CREF is seeking to attract $1.5 billion for a new fund that will buy farmland in the U.S., Australia and Brazil. TIAA already holds more than $2 billion in farmland investments – about half of that in U.S. farmland. Veteran manager Hancock Agricultural Investment Group, which manages nearly $1.4 billion in farmland, is targeting a $250 million raise for its new Hancock Global Farmland Income Fund.

Farmland has also caught the attention of at least one mutual fund: First Pacific Advisors’ $6.7-billion Crescent Fund recently acquired a $15-million stake in U.S. Farming Realty Trust, a two-year-old farm fund that has raised $261 million.

Is this farmland’s carousel-ride moment when the gold ring sweeps near and passes by, or has the agricultural sector crossed an inflection point of sustained growth? This is the question on landowners’ minds as the prime land-sales season approaches.

Absent production shortfalls caused by bad weather, economists look for grain prices to decline modestly over the next two years while land values trend steady to slightly higher. USDA forecasts that farm real-estate values will inflate 7.1% in 2011.