By Bruce Blythe, Vance Publishing, Business Editor

Midwest farmland values rose for the third consecutive quarter as a rally in cattle and hog prices and the prospect of record corn and soybean harvests boosted the agricultural economy, the Federal Reserve Bank of Chicago said.

Farmland values increased 6 percent during the three months ending June compared with the same period a year earlier, the Chicago Fed said in a report Thursday, citing a recent survey of the region's agricultural bankers. The survey didn't provide dollar values.

Stronger land values in part reflect renewed profits in the beef and pork industries, said David Oppedahl, an economist at the Chicago Fed. Additionally, much of a projected record corn and soybean harvest will be absorbed by robust export markets and by the ethanol industry. Midwest farmland values fell in three of four quarters in 2009.

"The recovery of revenue in agriculture has supported land values," Oppedahl said in a phone interview Thursday. Beef and pork industries "are in much better shape than a year ago."

Cattle and hog prices soared to multiyear highs in recent months after herds shrank and beef and pork demand improved, restoring producers' profits following at least two money-losing years. In May, hog prices hit the highest price in at least 14 years, based on Chicago futures, and are currently up about 75 percent from a year ago.

Iowa's land values led Midwest states with an 8-percent increase of as July 1, according to the Chicago Fed's survey, followed by Illinois, at a 5-percent gain, and Indiana, at 4 percent.

Michigan's values were unchanged, while Wisconsin's fell 1 percent, reflecting "struggles of the dairy industry," the Chicago Fed said. The full report is available here.

This year, "the expected stream of earnings from crop production has seemed to stabilize, providing support for farmland values," Oppedahl said in the report. Stabilization in corn and soybean prices is "easing a drag on farmland values from last year," he said.

Oppedahl noted that recent farmland values are compared to a depressed market in 2009, reflecting a drop in crop prices and weaker pork demand. Values may appreciate, or at least remain stable, in coming months if farm revenue continues to recover from a 2009 slump, he said.

"If we have a great harvest, as expected, there should be more bidding by farmers for land," Oppedahl said.

Still, with the housing industry "in the dumps," it's unlikely farmland will appreciate as rapidly as it did during the real estate bubble of the previous decade, he said.

There is "some upward momentum" in farmland values, Oppedahl said, "but not nearly as much as a few years ago, when we were seeing double-digit increases."

Recent government figures also illustrate stronger farmland prices across most Midwest states.

Iowa's cropland averaged $4,100 an acre this year, up 1.2 percent from 2009, according to a U.S. Department of Agriculture report released earlier this month. Illinois averaged $4,820 an acre, up 3.2 percent, and Indiana averaged $4,030, up 2 percent.

Michigan averaged $3,300 an acre, down 2.1 percent, and Wisconsin averaged $3,610, down 1.1 percent, according to the USDA. The full USDA report is available here.

Also, there were "some signs of improvement" in agricultural credit conditions during the second quarter, Oppedahl said in Thursday's report, noting that 28 percent of banks surveyed had more funds available, while 6 percent had less.

Collateral requirements for loans were stricter at 28 percent of the banks surveyed, while 72 percent had no change in requirements.

Interest rates on agricultural loans fell slightly during the quarter, though the competitive environment  "closely mirrored" that of a year ago, Oppedahl said in the report.

For operating loans, interest rates averaged 6.12 percent during the quarter, down from 6.18 percent a year earlier and 7.06 percent two years prior, according to the survey. Loans to feeder cattle operations averaged 6.25 percent, down from 6.36 percent a year ago.