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Officials say crops won't be hurt as much
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today announced they will not allow penalty-free early out on Conservation
Reserve Program (CRP) contracts at this time.
In making the announcement, USDA Secretary Ed Schafer said,
"The indications, so far, are the impact on this year's corn
and soybean crops will be less than what was originally feared."
As for whether this is the "final" word on this issue, Schafer
said that he wouldn't commit totally to that as conditions could change.
FSA Deputy Administrator for Farm Programs John Johnson detailed that
in April of this year, CRP contract holders paid the penalty to extract
34,000 acres from the CRP and 37,000 in May. "That's the
high point we've seen," he noted. "Over the last 19 months,
we have seen an average of over 15,000 acres per month" where the
penalty for exiting those contracts early was paid. Over the 19 months,
288,726 acres have paid the penalties to exit CRP early, he detailed.
Schafer also pointed out acreage was going to be exiting the program
already via regular maturities. USDA
data shows contracts 1.15 million acres of CRP ground will mature as
of Sept. 30, 2008, and 3.855 million will mature on Sept. 30, 2009.
Of those maturing as of Sept. 30, 2008, USDA data shows 134,954 acres
are in North Dakota, 134,024 acres are in Iowa and 123,353 acres are
in South Dakota. No other states have more than 100,000 acres maturing
As for the 2009 maturities, Texas leads with 776,086
acres, followed by Colorado at 717,347; Kansas with 429,411; North Dakota
at 236,857; South Dakota at 235,663; Montana at 184,834; Oklahoma at
160,859; Nebraska at 153,744; Iowa at 113,090 and Washington at 110,252
In addition, Schafer noted the acreage cap in the CRP was lowered
in the 2008 Farm Bill and therefore USDA was not contemplating holding
any new general CRP signups at this time.
Asked about the coming increase in the Renewable Fuels Standard
to 10.5 billion gallons of corn-based ethanol for 2009, versus the 9
billion gallons for 2008, Schafer said a lot of people commented on
this on "both sides of the equation." He noted acres continue
to come out of the CRP, so "we are trying to understand everyone's
Comments: This no-go decision
could come back to haunt USDA and the business of agriculture for a host
of reasons, including (1) the coming big boost in the RFS mandate for
corn in 2009, (2) the coming mandate for biodiesel, (3) the need for some
feed price relief for livestock producers, and (4) the potential impact
on food prices. This decision would explode on the Bush administration
if there is an early frost in the Midwest this year, or if there are any
other major weather-related problems.
I have confirmed several times that USDA was pressured not
to allow early out -- even if some in the Ag Department wanted
to do so. Those top level Bush administration officials included Vice
President Dick Cheney, Office of Management and Budget (OMB) Director
Jim Nussle, and the Council of Environmental Quality (CEQ).
I have also been told that in CRP meetings, Schafer would frequently
ask, "What will be the impact on wheat producers?" Schafer
was the former governor of North Dakota. Hmm.
And although USDA's Schafer and Conner told me last Friday that
last week's court decision against USDA's handling of the Critical Feed
Use (CFU) program would not have any impact on the decision on early
out for CRP acres, other sources tell me otherwise.
A former USDA analyst told me, "I
was surprised given how high prices have been and still are, and the difficulties
facing livestock, dairy and poultry producers, and the highest food price
inflation in 18 years, that USDA would have decided not to allow more
land to come back into production to help with these issues. In addition,
the increasing mandates under the RFS mean more land will be needed for
both corn and soybeans And, this is not just a one-year decision, as the
RFS mandates continue higher. This is a long-term decision to try to help
meet the expected demand, to keep commodity prices in general at more
reasonable levels. I would be interested to see the analysis USDA did
over the next three to five years to see the impact of today's decision.
USDA obviously feels that $7 corn and $14 soybeans and $8-$9 wheat is
not something that needs to be addressed, and the implications they have
on food prices. What is clear today is that USDA does not feel the other
stakeholders in this decision are important enough to warrant change."
Another analyst asked, "What
would it actually take, in terms of prices, in terms of supply, in terms
of demand, in terms of food price inflation, and losses in livestock enterprises...
what would it take for this administration to offer early out? When Schafer
said no early out at this time, again I ask: What would it take for the
Bush administration to alter their no-go decision?"
Bottom line: This makes the Environmental
Protection Agency's (EPA) coming decision on the RFS mandate waiver even
more important because any EPA modification in the RFS mandate
would have more impact short-term than would have been the case even if
USDA decided on early out on CRP acres -- a reduced mandate means reduced
need for additional corn acres and would help blunt what some believe
is a USDA policy miscue today.
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retransmission is prohibited under U.S. copyright laws.