Farmland values in the U.S. Midwest, one of the world’s top grain growing regions, jumped 10 percent in the third quarter compared to a year ago due to rising agricultural prices and the low cost of money, the Federal Reserve Bank of Chicago said on Thursday.

“Just two years after a string of double-digit increases, District farmland values increased 10 percent in the third quarter of 2010 relative to the same period last year,” the Chicago Fed said in its quarterly survey of 227 agricultural bankers in the five-state area.

“With the value of ‘good’ agricultural land rising so quickly, there were reports of more farms put up for sale than in recent quarters,” the bank said.

The Fed’s seventh district stretches across Iowa, Illinois, Indiana, Wisconsin and Michigan. Iowa and Illinois alone grow one-third of U.S. corn and soybeans, while Wisconsin and Michigan are major dairy states. Pork production is another leading industry across the district.

“The turnaround in credit conditions was quite abrupt,” Chicago Fed economist David Oppedahl said in an interview.

“We had strong credit, strong land value growth a couple years ago, and then things changed pretty dramatically with lower corn and soybean prices. Now there was a surge in those so we have a much more favorable situation again this fall.”

Corn prices climbed 27 percent from July to October and soybeans were up 11 percent amid concerns about shrinking world stockpiles. Yield estimates for U.S. corn also shrank.

Iowa farmland values were up the most at 13 percent over a year ago. Indiana and Michigan followed closely as values increased 11 and 10 percent, respectively.

“Farmland values were expected to be up again in the fourth quarter of 2010 by almost half of the respondents,” the Fed said.

Bankers expected demand for farmland to rise both among farmers and nonfarm investors in the coming quarter.

Agricultural credit conditions were also stronger in the third quarter compared to 2009. Loan repayment rates improved and loan renewals and extensions were down. But demand for non-real-estate loans in the third quarter receded from a year earlier.

“Interest rates on agricultural operating and real estate loans dropped to the lowest values recorded in history of the survey,” said the Fed, which began surveying rates in 1970.

The average interest rate on agricultural real estate loans as of Oct. 1 was 5.81 percent and the average operating loan interest rate declined to 6.04 percent.