An 'Easy' Answer for USDA on CRP Penalty-Free Early Out?

July 15, 2008 07:00 PM
 
via a special arrangement with Informa Economics, Inc.

Re-enrollment/extension effort could be used for parameters

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


USDA may already have an "easy" answer to the question of penalty-free early out on Conservation Reserve Program (CRP) contracts via their own re-enrollment/extension (REX) effort undertaken for contracts maturing 2007 through 2010.

While the decision is still really up to the White House as I noted via this column, the REX effort could have provided some parameters to the still-pending decision.

Background: Under the REX effort, CRP participants with contracts maturing over 2007 to 2010 were given an opportunity to either get a two-, three-, four, or five-year extension, or have get a new 10- or 15-year contract. USDA determined eligibility based on the contract's environmental benefits index (EBI).

Producers with contracts that were ranked in the highest 20% were offered the opportunity to re-enroll in a new 10- or 15-year contract. Producers with contracts that had EBI scores in each of the next lower 20% ranking score groups were offered extensions generally based on the following:

  • greater than 20% to 40% were eligible for a 5-year contract extension
  • greater than 40% to 60% were eligible for a 4-year contract extension
  • greater than 60% to 80% were eligible for a 3-year contract extension
  • greater than 80% to 100% were eligible for a 2-year contract extension

The results of that effort were that of the 15.686 million acres of CRP contracts to expire Sept. 30, 2007, those with contracts on 13.469 million acres either received extensions or new CRP contracts (those with continuous CRP contracts were not eligible for the REX effort but could be re-enrolled upon maturity).

For those contracts originally scheduled to mature as of Sept. 30, 2008, USDA said 5.893 million acres were eligible, and contracts on 4.811 million acres were either extended or re-enrolled.

So what does this have to do with the CRP penalty-free early out decision? Maybe nothing, but it is a pool of acres that have already been assessed by USDA relative to the EBI. Those with the highest EBI scores received new contracts, the rest were able to have their contracts extended -- contracts with only a two-year extension had the lowest EBI and thus are likely the least environmentally sensitive acres currently in CRP and would be the "easiest" for USDA to defend relative to allowing them to exit the program early.

What do those numbers look like? Based on USDA data, here's the breakdown of acres that would have expired either Sept. 30, 2007, or Sept. 30, 2008, that were extended for two or three years:

Extension Length
Acres Eligible
(million)
Acres Accepting
(million)
Contracts originally maturing Sept. 30, 2007
Two Years
3.152
2.885
Three Years
3.171
2.811
Contracts originally maturing Sept. 30, 2008
Two Years
1.160
0.982
Three Years
1.120
0.940

USDA data indicates that 3.856 million acres are now scheduled to mature as of Sept. 30, 2009, including 2.885 million acres originally that were to expire Sept. 30, 2007, but got a two-year extension.

Of the 4.458 million acres now scheduled to expire Sept. 30, 2010, 2.811 million are 2007-maturity contracts that received a three-year extension and 940,000 acres are 2008-maturity contracts that received a two-year extension.


Comments: I am not suggesting that this is the way that USDA will do a penalty-free early out. But it certainly would be the most defendable way of going about providing the opportunity for producers to take land out of the CRP and put it back into row-crop production for the 2009 growing season. If USDA were to limit that effort to those contracts now scheduled to mature either Sept. 30, 2009, or Sept. 30, 2010, they would have a pool of just over 8.3 million acres that are scheduled to leave the program anyway, and a good chunk of them have lower EBI scores.

Of course, USDA may not allow those acres enrolled via the continuous signup to be eligible for any penalty-free early out. Those acres, after all, are much more environmentally sensitive acres than those signed up via the general CRP signups. Continuous signup acres are those that typically are filterstrips, shelterbelts, etc., that provide significant environmental benefits and likely shouldn't be brought back into production. So the total eligible acres would be lower than the 8.3 million level.

Bottom line: This isn't necessarily an answer to the CRP penalty-free early out issue, but it is at least a pool of acres that USDA has already assessed relative to their EBI score and would provide a universe of acres for this decision that are currently in the program and don't provide the degree of environmental benefits that others do.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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