The Federal Reserve Bank of Chicago’s latest AgLetter reports that ethanol is helping to fuel a surge in agricultural land prices.

According to the report, the 2006 annual increase in farmland values was 9 percent for the Seventh Federal Reserve District, which includes Iowa and parts of Wisconsin, Illinois, Indiana and Michigan.

The area with the biggest rise was northwest Illinois, where prices soared by 17 percent last year. Iowa posted a 13 percent annual increase because of a fourth quarter gain of 7 percent.

Based on 213 survey responses from agricultural bankers, the quarterly rise in the value of “good” agricultural land was 5 percent in the fourth quarter of 2006. Almost 50 percent of the respondents expected farmland values to increase, as well as to remain stable, in the first quarter of 2007.