While the Midwest has been battered in recent years by manufacturing job losses and price drops in residential and commercial properties, farmland has become a bright spot in Midwest real estate.

As commodity prices surge, farmers and investors across the Midwest are bidding up farmland at auctions, prompting values to soar.

Investors in Corn Belt farmland saw a 14 percent return last year on the land, which includes appreciation and income from renting it to farmers, according to the National Council of Real Estate Investment Fiduciaries.

As the agricultural economy continues to thrive, farmers are having less incentive to sell, which is creating a low supply of land that is high in demand.

Prices continue to increase due in part to the limited supply, says Randall Pope, chief executive officer of the Westchester Group Inc., which manages farm tracts. There are a number of people who would like to buy these days but there isn't a lot of product on the market.

For example, investors bid up prices in an auction last month for 120-acres of farmland in Greene County, Iowa. The winning bid offered $8,200 an acre--nearly $1 million, which was 44 percent higher than the $5,701 per-acre estimate for average values in the county.

Sheila Bair, Federal Deposit Insurance Corp chairperson, warned in October that a bubble may be forming in farmland real estate. But that hasn’t seemed to turn away investors.

Analysts predict farmland prices will continue to climb. Values in Iowa, which is the largest corn and soybean-growing state, climbed 16 percent in 2010 and are expected to increase another 10 percent this year if commodities remain at current levels.

Source: “Value of Midwest Farmland Climbs,” Bloomberg News (Feb. 21, 2011)