At 85, Rudy Raths still has a sharp eye out for farmland. The Alexandria, MN, farmer owns about 3,000 acres of cropland in west-central Minnesota, which he farms with his son. He picked up a 240-acre parcel a while back, paying about $3,000/acre. “I’d buy more if it was available,” he says. “I’d sooner invest in land than anything else. It always seems to provide a return.” But, he adds, “There’s quite a bit of competition for good land when it comes up for sale.”

Willing buyers like Raths tell the story of cropland values in the past year. Strong demand and fewer tracts of land for sale stabilized land prices after dipping in late 2008 and early 2009. By 2010, prices for top-quality farmland were again on the rise.

“Economics 101 appears to be working,” says Lee Vermeer, vice president of real estate operations for Farmers National Company, Omaha, NE. “There’s strong demand, but not much supply, particularly for high-quality land.”

That equation has sustained prices and even produced a few “extraordinary sales,” Vermeer says. In a June 18 auction in Franklin County, IA, for example, two parcels of cropland fetched over $7,000/acre.

Nebraska, Kansas and the Dakotas led farmland markets in 2009, according to USDA’s annual land values and cash-rent survey, which reported land values as of Jan. 1, 2010. Northern Plains farmland values rose 7%, Delta farmland climbed 6% and Corn Belt values edged up 2%.

Farmland gains continued in the first half of 2010. In August, the Federal Reserve Bank of Kansas City reported that the price of irrigated land was 9% higher in Kansas and 6% higher in Nebraska than a year ago. Non-irrigated land in those states rose 6% year-over-year. “Particularly in central and south-central Nebraska,” Vermeer says, “we’ve seen really strong sales of good, irrigated ground in the last six to nine months, often in excess of $6,000/acre.”

The Iowa Farm and Land Chapter of the Realtors Land Institute estimated that Iowa land values ticked up 3% between September 2009 and March 2010, averaging $5,500 for high-quality land and $3,000-4,200 for low- and medium-quality land.

In Indiana, top-quality farmland increased about 6%, according to Purdue University’s 2010 Farmland Values and Cash Rent Survey. Values ranged from $3,500/acre for low-productivity land, to $5,310/acre for top-quality ground.

Likewise, the Federal Reserve Bank of Chicago in August reported a 6% year-over-year average increase in the value of farmland in the major corn-producing states of Iowa, Illinois and Indiana. “Location has been a major determinant for farmland values this year, even more significant than quality at times,” says Chicago Fed Business Economist David Oppedahl. “There are reports of prices boosted by bidding between farmers for desired parcels of farmland.”

Midwest land markets sizzled from 2005 to mid-2008, then cooled in late 2008, when crop margins tightened and the financial crisis deepened, says Royce Elker, director of appraisal services for AgStar, a Mankato, MN, Farm Credit Services bank.

Elker oversees about 2,000 farm real estate appraisals a year, tracking based on three-year land-value rolling averages. Gains held steady from 2001 to 2004, at about 8% a year, he says. In 2005, appreciation rates climbed into the double digits, peaking at 12.5% in 2008. “The upward trend continues,” Elker says, “but at a decreasing rate.” Three-year average appreciation dropped to 11% in 2009 and 7% in 2010, he says.