One year ago, good Illinois farmland was selling for about $1,050 an acre. Today the average price has soared to $1,500 - a 41 per cent increase that has caught the eye of savvy investors.

Savoring those increases, one Chicago bank thought it would jump into the land-buying business, but landed instead in a stew of controversy.

Continental Illinois National Bank, trying to plow some new investment ground, announced that it was planning to set up an investment trust that would buy up to $50 million worth of prime U.S. farmland. The money would come from America's burgeoning pension funds, which are always looking for a safe, profitable place to invest a few million dollars. The land would be leased back to farmers.

But to the chagrin of its sponsors, the plan has run up against a wall of opposition from by farmers' organizations, local businesses, consumer groups and a number of congressmen.

Critics charge that the trust plan would return agriculture to the days of "farm tenants," "sharecroppers," and even worse.

"I thought we had done away with slavery in 1865," said Ted Lerew, a member of the South Dakota Farmers Union, the largest farm organization in that state.

Officials of the Chicago bank, testifying before a House Agriculture subcommittee, said their aim was just the opposite: to give small farmers without capital a means of acquiring a large tract of ground.

The bankers said their lease would include an option to buy that would help young farmers get started.

American farmland certainly seems like an ideal investment: Values have gone up every year since 1938. One agricultural expert on Capitol Hill noted: "Congress is committed to farm profits, and that should assure that the value of farmland will grow."

Recent years have offered dramatic proof of that point. From 1971 through 1976, while the stock market stumbled through a series of lackluster years, the price of farmland in lowa climbed 158 per cent.

During that same period, prices for prime farmland rose 141 per cent in Illinois, 143 per cent in Minnesota, 124 per cent in New York, 132 per cent in Nebraska, 85 per cent in Florida, 70 per cent in Texas, and 43 per cent in California.

Continental Bank, in conjunction with the firm of Merrill, Lynch, Pierce, Fenner, and Smith, proposed to latch onto this price escalator with a tax-sheltered trust fund. The Continental plan would put pension monies into farmlands, which would then be leassed back to farmers.

If the plan worked, it is understood that other firms, including insurance companies, were planning to set up similar trusts.

Bank officials testifying here also noted that tremendous investments were going to be necessary in agriculture if America was to produce the amounts of food that would soon be needed for the world's growing population. Investment trust funds managed by Continental and others would be a means of funneling resources from urban workers into rural areas.

Critics of the plan raised a number of points during three days of hearings. Among them:

It would reduce the number of farmers who actually owned their land - a reversal of America's long-term trend toward ownership.

It would result in consolidation of farmland, thereby reducing the number of family farms.

It would concentrate agricultural decisions in the hands of trusts, which would gain excessive power over America's food production.

The trusts would inflate land values, which could make it even harder for young farmers to get a start.

It is unfair for a tax-exempt trust to compete with taxpaying farmers.

The issue next goes to the Internal Revenue Service, which must rule on Continental's request for tax-exempt status. A negative ruling by the IRS would kill the plan, Continental officials said.