The drought which has handed parts of Oklahoma a worse drought than during the 1930s Dust Bowl has held down rises in land rents, but not prevented farm values joining a jump to record highs, the Federal Reserve said.

Rentals for non-irrigated land in Oklahoma rose only 1.8%, year on year, in the first three months of 2011, way behind the regional average of 17%, the Fed's Kansas City bank said.

The lag was blamed "in part" on "severe drought conditions" which have left 77% of the state's winter wheat, and 85% of its rye, rated poor or very poor, according to a US government report earlier this week which warned of "exceptionally bad drought" in western areas.

Parts of the state have reportedly gone without more than one-quarter of an inch of rain for more than seven months.

Market squeeze

However, values of non-irrigated Oklahoma land rose by 14.5%, a sharp rise from growth of 5.0% seen the September-to-December period, year on year, and not far behind the regional pace.

Non-irrigated land on average gained 20% in price in the Fed's Kansas City district, which also includes Kansas, America's top wheat-growing state, Missouri and Nebraska.

The Fed attributed the increase, which took arable land values to a record high, to "strong demand for farmland and limited supplies for sale".

"With robust farm income, farmland values posted sharp gains akin to the swift rise in 2008," the bank said, following a quarterly survey.

Indeed, the pace of increase prompted fresh concerns over the market, with one banker saying he was "afraid [land values] may be a bubble in the making", echoing comments two months ago from Robert Shiller, the Yale University economics professor.

Most bankers contacted for the survey forecast that land prices would "level off as the growing season gets under way", with poor crop conditions and higher fuel and fertilizer costs potentially curbing farmers' incomes over the summer.