Gunning for Acres
By Chuck Abbott
1/17/2007
A December storm swept into central Nebraska, but pork producer and row-crop farmer Joy Philippi was focused on the tumult in grain prices. The highest corn prices in a decade, thanks to ethanol demand, have doubled the cost of the 10 bushels of corn that pork producers need to feed out each animal.
“The extra $18 per head doesn’t sound like a lot,” says the president of the National Pork Producers Council (NPPC), but “that adds up pretty quickly” to a cost of production headache since soy and other ingredients of hog rations are going up, too.
“It’s going to take more planted acres to keep the ethanol plants running and to keep [livestock] feed stocks available,” the Bruning, Neb., producer adds. It’s also why livestock and poultry organizations, the feed industry and grain exporters are laying the groundwork to revamp the 20-year-old Conservation Reserve Program(CRP) in the next farm bill.
Free acres. NPPC says higher-quality land in the Conservation Reserve should be brought into production over the few years, when corn demand is expected to peak and farm-gate prices could crack the record average $3.24/bu. collected for the 1995 corn crop. This year would be only the fifth time that farm-gate prices average more than $3/bu., USDA says.
Food processsors and exporters agree that slimming down the CRP, the largest U.S. land retirement program, which holds 36.7 million acres, would be an ideal way to expand crop acreage by several million acres—and possibly more. In contrast to NPPC, most grain-based farm groups have been silent on the idea and there was no consensus among lawmakers by the end of 2006 on how to address the acreage crunch. Realistically, it would be 2008 at the earliest before any additional CRP acres would come to the livestock industry’s rescue anyway.
“The market is calling for acres right now,” says one grain company executive who asks not to be named. He advocates that USDA allow landowners to withdraw less-erodible land from the reserve without penalty. He said a corn supply “crisis could come this summer, potentially.”
The arithmetic of corn demand is brutal. Usage will out-run the 2006 harvest by 1 billion bushels through next summer, cutting stockpiles in half, USDA said in December. “There is really very little cushion if the 2007 crop is not a new record high,” says analyst Mark McMinimy of Stanford Washington Research. “We’re not going back to $2 (corn) any time soon.”
Ethanol refiners are forecast to use 20% of the 2006 corn crop and will be hungry for more. They distilled about 5 billion gallons of the biofuel in 2006 and construction work under way will expand annual capacity by 4.4 billion gallons, says the Renewable Fuels Association.
Feed anxiety. “One of the most important actions” to assure enough grain for ethanol and livestock “is revising the CRP so that it recognizes environmentally sensitive lands need protection, while sound, productive land needs to be available as market conditions warrant,” Sharon Clark, a vice president of Perdue Farms, told the House Agriculture Committee last fall. She spoke on behalf of the Alliance for Agricultural Growth and Competitiveness, which represents millers, food makers, shippers and the poultry industry. It says the 2007 farm bill should “eliminate the retirement of all non-erodible, non-environmentally sensitive farm land.”
By that yardstick, two-thirds of the CRP could be farmed with low or no-till, says one alliance member. However, USDA chief economist Keith Collins estimates 4.3 million to 7.2 million acres idled in the CRP “could be used to grow corn or soybeans in a sustainable way.” For this year, Collins says, farmers will expand corn acreage by scaling back other crops or by converting pastures, most likely in the South and mid-South.
Agriculture Secretary Mike Johanns sees a small impact if CRP land becomes available. “Not every conservation acre is going to grow corn. In fact, it is a small number of acres,” says Johanns, who notes it would take time to bring idled land back into condition.
Some Conservation Reserve land is not suitable for crops, even with minimum tillage, and analysts say some landowners are not interested in putting land back in crops. Some landowners are dedicated to conservation or hunting, others rely on the annual rental payment for retirement income and still others doubt crops would generate profits long term.
“They’re in the CRP for a reason. They want the guaranteed payment,” says a former USDA policymaker. In the last few years, around 85% of landowners have opted to re-enroll or extend their contracts.
Iowa farmer George Naylor, president of the National Family Farm Coalition, says talk about the CRP is an agribusiness ploy for cheap grain. If the CRP is opened and South American farmers try to cash in on the currently high prices [by expanding their plantings], “there’s no telling what the price will be,” Naylor says.
Crying fowl. Reforming the CRP won’t be easy. Wildlife groups say they will defend the reserve and other USDA stewardship programs during upcoming farm bill debate. The National Wildlife Federation (NWF), Ducks Unlimited and allies call for creation of a “sod-saver” provision to eliminate subsidies for crops grown on newly converted grasslands. NWF says 300,000 acres in North Dakota and South Dakota—”the epicenter” of duck habitat—were converted to crops from 2002 through 2005.
Another factor weighing against conversion is the economics of cultivating long-dormant land. Besides clearing costs and weed control, landowners who want to break a CRP contract must refund all payments under the current contract, plus interest and any damages.
Farm program holes. Clark’s agribusiness alliance says nearly all CRP land is eligible only for marketing loans and not for direct payments or counter-cyclical payments. “Congress in the new farm bill needs to recognize this issue,” it says. Crop bases have been frozen since the first year of the 2002 farm law.
Since 1996, USDA says, it generally has not reduced a farm’s crop bases when land entered the reserve. “For as long as the cropland is enrolled in CRP, it retains its status as ‘cropland,’” USDA says in response to questions.
“Under current law, commodity program eligibility is based on the historic bases on the farm,” says USDA. “However, commodity program payments are not made based on the number of acres actually planted. Producing commodity crops on land formerly enrolled in CRP, however, may make the crops eligible for price support payments including commodity loans, loan deficiency payments and marketing assistance loans.”
Precedent does exist for liberating CRP acres early. Twice during the mid-1990s—the last time U.S. stockpiles ran low and prices surged—USDA offered an “early out” from contracts with no financial penalty.
Only 704,000 acres were withdrawn in 1995 and 768,000 acres in 1996, although millions were possible. Environmentally sensitive land like filter strips were not eligible and farmers had to promise to control erosion. In the 1995 offer, crop bases, allotments and quotas could not be reinstated until the 1996 crop year, meaning deficiency payments were not available on 1995 crops. In the 1996 offer, bases, allotments and quotas were immediately restored.
Contracts on 3 million CRP acres will expire this fall and on 1.1 million acres in fall 2008—small amounts compared to the 350 million acres or so of U.S. cropland.
More green payments. With Democrats now in control of Congress, more conservation funding—not less—remains a distinct possibility. Sen. Tom Harkin (D-Iowa), the new chairman of the Senate Agriculture Committee, says he wants to put more money into conservation, particularly on working lands. Harkin insisted on creation of the Conservation Security Program in 2002. His House counterpart, Rep. Collin Peterson (D-Minn.), has suggested a five-year pilot program, similar to the CRP, to pay farmers to plant 5 million acres a year of switchgrass and other biomass crops for cellulosic ethanol.
“We may look at some kind of reserve for livestock feed,” Peterson says.“This idea there’s a huge amount of land out there that you can put into production, I don’t think it’s going to happen.”
Where most CRP acres will expire in 2007
Contracts on 3 million CRP acres expire this fall,
about 355,000 in the five largest corn states and
1.2 million in the five largest wheat states.
State Acres
Alabama 87,376
Colorado 31,751
Georgia 42,637
Idaho 103,283
Illinois 70,375
Iowa 114,377
Kansas 308,945
Kentucky 38,831
Minnesota 62,622
Mississippi 122,700
Missouri 171,190
Montana 243,181
Nebraska 79,247
New Mexico 78,519
North Dakota 305,602
Ohio 32,272
Oklahoma 131,926
Oregon 88,456
South Dakota 317,680
Tennessee 48,906
Texas 213,698
Wisconsin 63,608
—Top Producer, January 2007
Our Initiatives
Farm Journal Media Family
©
2009
AgWeb.com - The Homepage of Agriculture
AgWeb.com is a Division of Farm Journal Media, Inc.
Quotes by eSignal delayed 15 minutes
