The Chicago Fed's report comes a day after the Kansas City Fed also reported a 25% increase from a year ago. Higher prices for crops, livestock and dairy have helped boost farmer incomes, driving the increase.

For the year, farmland values in the Chicago district, which includes Iowa and the key corn-producing regions of Indiana and Illinois, jumped 22%, the biggest increase since 1976.

"The year 2011 may go down in the annals of U.S. agriculture as a once-in-a-generation phenomenon," the Chicago Fed said in its report.

Although farmland price increases have slowed recently, with fourth-quarter values up only 4% from the prior quarter, more than 40% of the bankers surveyed expected further gains in the first three months of 2012, the Chicago Fed said.

The district includes some of the most productive corn and soybean soil in the world, which has helped drive farmland interest as crop prices increased. Gains were greatest in Iowa, where farmland values jumped 28% in 2011, and in Indiana, where values jumped 27%.

The district also includes parts of Michigan and Wisconsin, where values jumped 18% for the year. While dairy prices also climbed sharply in 2011, analysts say that dairy farmers haven't enjoyed as much of a gain in income because their production costs climbed with the cost of feed.

The rapid gains have prompted some concerns about a potential bubble, but many economists said that a crash is unlikely as crop prices are high and farmers don't have nearly as much debt as in the 1980s, when a farmland bubble popped.

Agricultural credit conditions in the Chicago district were stronger in the fourth quarter than the prior year. The Chicago Fed reported that farm loan repayments improved and loan extensions dropped in the quarter.

The district's loan-to-deposit ratio of 68.7% was the lowest since 1997, the bank said.

-By Ian Berry, Dow Jones Newswires; 312-750-4072; ian.berry@dowjones.com

(END) Dow Jones Newswires

February 16, 2012 16:24 ET (21:24 GMT)