Ranchland values climbed sharply in the first quarter of 2011, rising 11% above year-ago levels, according to a survey of ag credit conditions by the Federal Reserve Bank of Kansas City. Stronger profits for livestock operators and increased demand for cattle grazing boosted ranchland values across the Fed’s seven-state district of Colorado, Kansas, Nebraska, Oklahoma, Wyoming, Northern New Mexico and Western Missouri.

Farmland values, both irrigated and dryland, rose as well, increasing 20% above year-ago levels. That increase rivaled some of the record increases seen in 2008, says Brian Briggeman, economist for the Kansas City Fed.

“Nebraska and Kansas enjoyed the strongest cropland value gains, with nonirrigated cropland rising roughly 24% during the past year,” he says. While strong demand for land and limited supplies of farms for sale continue to support record-high cropland values, bankers responding to the survey think land values will level off as the growing season gets underway.

“Similar to 2008, farm income soared with higher commodity prices,” Briggeman says. “In the first quarter of 2011, the farm income index rose to its highest level in a decade. Given the rise in income, farmers were increasing the use of cash payments and equity to finance land purchases rather than debt.”

Producers were also paying cash for some production expenses instead of taking out an operating loan. That led bankers to report lower loan demand, in spite of higher input costs.

On the other hand, that means plenty of money is available for those producers who want to take on debt. “Most survey respondents expected that funds available for farm loans would be more than sufficient to satisfy future loan demand,” Briggeman says. Interest rates on operating loans edged down, averaging 6.6%, while interest rates on real estate loans held at an average of 6.3%, he adds.

All in all, that means farm credit conditions are good. “After improving at the end of last year, farm credit conditions generally held steady in the first quarter of 2011,” Briggeman says. “The loan repayment index remained elevated as farmers continue to use profits to pay down debt.”

Briggeman says bankers also reported that the number of loan renewals or extensions held at a relatively low level. The notable exception was Oklahoma, where bankers anticipated loan repayment rates would fall as the state continues to be in the grip of a devastating drought that will likely cripple income prospects.