Despite a near crippling drought, farmland values in five Midwest states jumped by double-digit percentages during the past year.

Farmland values increased by an average of 16 percent from Jan. 1, 2012, to Jan. 1, 2013, in the five states — Iowa, Illinois, Indiana, Michigan and Wisconsin — that make up the 7th Federal Reserve District, which is served by the Federal Reserve Bank of Chicago, according to the Agriculture News Letter issued last week by the bank.

“Although the district’s annual increase of 16 percent in the value of good farmland for 2012 was a little lower than that for 2011 — 22 percent — it was still the third-largest increase since the late 1970s,” said David Oppedahl, business economist at the Federal Reserve Bank of Chicago and the author of the Agriculture News Letter.

Illinois, Iowa and Michigan saw year-over-year jumps in agricultural land values that exceeded the annual increase for the district, he added.

The value of good farmland, where the land is flat and soil is rich, in Iowa jumped 20 percent over the past year, while farmland values in Illinois and Michigan each had increases of

percent, he said.

Oppedahl said that the same factors that have driven the price of farmland up over the past several years, primarily higher corn and soybean prices to farmers, are still in play.

An example of the money farmers stand to make today, corn closed at $6.98 a bushel Friday on the Chicago Mercantile Exchange. In 2005, farmers were getting $1.86 a bushel for corn.

The extra money farmers can make coupled with low interest rates has farmers wanting to expand, Oppedahl said.

“They want to position themselves for the future,” Oppedahl said. “It’s hard to get land now, because they (farmers) are bidding for it.”

Iowa State University economist Mike Duffy, the author of Iowa State’s annual Farmland Value Survey that looks at farmland values in Iowa from November to November, said he is not surprised by Oppedahl’s findings.

“This land is continuing to move,” Duffy said. “It’s continuing to be a fairly hot market.”

The average value of all farmland for sale in Iowa for 2012 was $8,296 an acre. In 2011, it was $6,708 an acre, according to Duffy’s farmland values report.

High-grade farmland in Iowa was selling for an average of $10,181 an acre in 2012, compared with $8,198 in 2011, according to Duffy’s report. The value of medium- to low-grade farmland ranged from about $7,000 an acre down to about $5,000 an acre for 2012.

There is a concern that land values are suffering from a bubble that could burst.

“I lived through the ’80s, and I know that what goes up must come down,” Duffy said.

How fast the air comes out of that bubble will depend largely on the weather here and the rest of the world, he said.

Before the drought struck, the ground in 2012 had a full soil moisture profile, he said.

During the summer, however, corn roots had to drive down deep to find water, and that deep soil moisture still needs to be replaced, he said.

Should the drought continue this year with the ground still lacking moisture down deep, it could be a very bad year for crops, and farmland values could take a dip down.