CRP Won't Be Ethanol Factor in 2007

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There's a bidding war going on in corn country, trying to buy corn acres to feed growing ethanol demand, as well as domestic feed needs. Many are looking at idle lands in the Conservation Reserve Program (CRP) to contribute to the needed 4-8 million acres of corn next growing season. However, a growing number say that isn't the answer and it won't even be a factor in 2007. In addition, instead of saving the government money, it may end up costing the government more while in turn lowering crop prices.

About 16 million of the 37 million CRP acres are scheduled to come out of the program in 2007. Earlier this year, USDA offered re-enrollments to producers currently enrolled in CRP fearing a mass depletion of the environmentally-sensitive lands. But instead of the 10 and 15-year enrollment periods, Secretary of Agriculture Mike Johanns said it was done on an index basis, including 10, 5 and 2-year contracts.

In mid-November, USDA Deputy Secretary Chuck Conner said higher prices are not enticing landowners to move their land back into production. USDA is expecting an 81% retention rate, inline with previous re-enrollment periods, but more puzzling in the current high farm price climate.

In comments to the Senate Committee on Environment and Public Works, Keith Collins, USDA chief economist, a preliminary assessment of all CRP land in counties where 25% or more of harvest cropland was producing non-irrigated corn and soybeans concluded that 4.3 to 7.2 million acres currently enrolled in the CRP could be used to grow corn or soybeans in a sustainable way.

CRP end lowers prices

A study, Analysis of the Economic Impacts on the Agricultural Sector of the Elimination of the Conservation Reserve Program, released earlier this fall from the Agricultural Policy Analysis Center at the University of Tennessee estimated that if CRP contracts are eliminated as they expire, 37% of today's 34.7 million CRP acres, or 12.6 million acres, will return to crop production by 2015. Seventy-one percent of returning acres, or 9 million, will grow corn, soybeans and wheat.

"With additional CRP acres coming into production, corn prices would be 31 cents below current expectations with wheat prices experiencing a 63 cents per bushel decline. Soybean prices would suffer from a 90 cents per bushel drop" said author Daniel De La Torre Ugarte. "These lower prices are the trigger that brings about a nine year $33 billion increase in farm program spending."

By 2015, APAC's model predicts

  • Corn at $2.29, 31-cents per bu. below USDA's projected baseline,
  • Wheat at $2.92, 63-cents per bu. below USDA's projected baseline, and
  • Soybean prices at $5.20, 90-cents per bu. below the USDA projected baseline.

APAC estimates the three major crops will lose at least $6.9 billion in net market returns in 2015 if CRP acres flow back into crop production.

Changing policy

Johanns said he has made "no decision" about paring down the Conservation Reserve program to allow for more planting for biofuels and plans to kick acreage out are "baseless."

Lands currently enrolled face steep penalties if ended before the contract expires. An opportunity exists for legislators to provide greater CRP enrollment flexibility in the next farm bill.

Kendell Keith, president of the National Grain and Feed Association, said if commodity prices stay relatively high, odds start to improve to allow producers to make decisions without facing penalties and still not definitively locking land out of production, he said.

"Even if you have an open market that can essentially bid for CRP land, there are a lot of barriers to making that happen," he said.

Keith explained that you don't just pull CRP land out of the program and plant corn into it. "There is a fairly substantial cost to getting the land prepared and ready to go for cropping," he said. It takes multiple cultivations to break down grass rooted. Some lands require considerable fertilizer because a lot of the nutrients had been taken up by grass.

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