Persistent drought sparked a rush in irrigated farmland sales during the fourth quarter of 2012, according to the Federal Reserve Bank of Kansas City's quarterly Survey of Agricultural Credit Conditions.

Stronger sales vaulted irrigated cropland values in the seven-state Tenth District 30 percent above year-ago levels, with a 13 percent jump in the fourth quarter alone.

Farmers were the predominant buyers of farm real estate and placed a premium on irrigated land due to water scarcity stemming from drought. Non-irrigated cropland and ranchland also posted strong annual gains between 20 and 25 percent.

Farmland values rose with stronger-than-expected farm incomes. High pre-harvest crop prices lifted incomes, especially for farmers on irrigated land, while crop insurance payments compensated for yield losses on non-irrigated land.

A post-harvest decline in crop prices and strengthening cattle and hog prices improved livestock profitability as losses narrowed.

Higher farm incomes boosted capital spending and led to improved agricultural credit conditions. Expectations for capital spending in the coming months varied, as bankers surveyed generally expected that areas still experiencing drought would make fewer capital improvements in early 2013.

The complete survey is available at www.KansasCityFed.org/agcrsurv/agcrmain.htm.