The Northwest's agricultural land sales activity increased in the first half of 2011, with Eastern Washington's dry land property continuing to be stable to increasing in value, says Spokane-based agricultural lender Northwest Farm Credit Services.

Overall Northwest farmland values are on the rise, due in part to increased farm incomes, says a land value survey released by the federally chartered lender last month. Its survey is based on real estate and sales activities that are monitored by its appraisers throughout Washington, Idaho, Montana, and Oregon.

While few transactions are exposed to the open market, low capitalization rates, strong commodity prices, and favorable interest rates all continue to fuel optimism in the agricultural land market, says Roger Cramer, Northwest Farm Credit Services senior vice president of risk management and head of the organization's appraisal services department.

"What we're seeing in Washington is there's a lot of interest in wheat land, and it's generally from a neighbor," says Cramer. He adds that a purchaser is usually another farmer. "They're looking to expand. Wheat land is fairly tightly held; it's been in the same family in many cases for years, so when it sells, it may be a once-in-a-generation opportunity to buy something close to someone's existing farm."

The ag lender's report says another typical scenario involves established farmers who purchase land they have leased for many years.

"The demand is from the existing operator expanding, but the supply remains low," Cramer says.

Higher commodity prices in the Northwest such as for wheat, hay, potatoes, and fruit crops also has attracted institutional investors, real estate investment trusts, and individual investors to the market for agricultural properties, Cramer adds.

Some companies that are looking for excellent properties will pay a premium, the organization's report says.

"I don't think it's happening to a large extent in Washington," Cramer adds. "We're maybe seeing it more in parts of Southern Idaho. Some of the investors in some cases are someone with a historic tie to the area, so it may be someone who grew up on a Washington farm, moved to the coast, and is looking at perhaps farmland as an alternative investment to stocks and bonds."

Often those types of investors will have farmers continue their agricultural operations under a lease arrangement.

Agricultural land values in Idaho also are stable to increasing, the report says, adding that strong commodity prices such as for grain, beets and potatoes and historically low interest rates have helped bolster values there.

The U.S. Department of Agriculture's land values 2011 summary released in August says the U.S. farm real estate value, a measurement of the value of all land and buildings on farms, averaged $2,350 per acre for 2011, up 6.8 percent from 2010. Its report says Washington state farm real estate value averaged $2,090 per acre, up 2 percent from 2010. Meanwhile, so-called "corn belt" states—Illinois, Indiana, Iowa, Missouri and Ohio—saw a nearly 16 percent increase.

Cramer says he thinks the reason the corn-growing region is showing such good values is that the use of corn for ethanol exceeded the use of corn for feed for the first time in July 2011.

Northwest Farm Credit provides financial and related services and crop insurance to farmers, ranchers, agribusinesses, commercial fishermen, timber producers, and rural homeowners in Washington, Idaho, Montana, Oregon, and Alaska.