U.S. farmland prices are setting records and farmer incomes have been buoyed by biofuels and exports, despite the sputtering economy, easing the pain of the challenging summer weather that included drought, floods, and fires. Amid China’s appetite for grains and worries about climate hurting crops and food supplies in many countries, U.S. agriculture is booming and has a beacon of interest to Wall Street.

In the last five years the market price of storage has increased, and as a result firms like Gavilon, based in Omaha and owned by a hedge fund, have been buying from grain elevators from Wyoming to Toronto.   It is unusual for investors to own grain silos, but storing and moving grain for others has now become a very profitable business, analysts say.  “We’ve seen a lot of big new entrants into the agricultural commodity industry, including hedge fund White Box Advisors, Gavilon, and others who are expanding,” William Wilson, a consultant and professor at North Dakota State University.  “One reason has been the shift to ethanol having a bigger part of the market, where they demand quick access to corn on a 12-month basis,” he said.

Wall Street investors also continue to push money into speculative vehicles like grain-related indexes and funds that trade grain derivatives.  But farmland has also increased at a dizzying rate.  The Chicago Federal Reserve Bank on Wednesday said farmland prices in the Midwest in the second quarter were up 17 percent from a year ago–the biggest jump in 34 years.  The situation is similar in the Plains.  The Kansas City Federal Reserve Bank on Monday reported that farmland values were up more than 20 percent from a year ago.

University of Illinois economist Gary Schnitkey attributed the soaring value of farmland to be the sluggish economy and global fiscal imbalances.  “The threat of long-run instability places a premium of real assets over financial assets. This suggests that a more stable general economic outlook would lead to less aggressive growth in farmland prices,” he said.