USDA Nearing Decision on CRP

Published on: 08:32AM Jul 04, 2008

via a special arrangement with Informa Economics, Inc.

Near-daily meetings at USDA on sensitive topic

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USDA analysts and officials have met on a near daily basis regarding an upcoming decision as to whether or not to allow early exit without penalty of non-environmentally sensitive Conservation Reserve Program (CRP) acres, and if so, how many potential CRP contracts and acres would qualify for early out, and a guesstimate of how many CRP participants would take any announced option.

Several CRP decision options are being reviewed, so any reports about the likely details are conjecture until top USDA officials – and perhaps White House attention on the matter – sign off on the issue.

I note potential White House interest because some sources have told me that last year's decision not to offer CRP opt out without penalty was pushed by Vice President Dick Cheney, an avid hunter.

USDA analysts have been reviewing how many CRP acres would qualify for an early out decision, depending on what the Environmental Benefits Index (EBI) number is set at for qualifying for any opt out without penalty. That is why USDA has been looking at several possibilities, including limiting the opt out to those CRP contracts expiring in the fall of 2009, 2010 and perhaps 2011.

Facts and figures. On Sept. 30, 2009, 3.9 million CRP acres expire; Sept. 30, 2010, 4.5 million acres expire; on Sept. 30, 2011, 4.4 million acres expire; and, 5.6 million acres expire on Sept. 30, 2012. (Contracts totaling 1.2 million acres expire as of Sept. 30, 2008.)

Others, however, note that USDA is also reviewing an option that would not limit the opt out to any specific years, but to all contracts expiring that meet a specified EBI level.

Some sources signal a potential CRP opt out universe number of 10 million to 15 million acres, with varying guesstimates of how many CRP participants would take any opt out offer. I know of at least one Bush administration source who said the U.S. needs 8 million to 10 million CRP acres in the years ahead to meet growing demand for soybeans, corn, wheat and other small grains.

As for the timing of the CRP decision, USDA Secretary Ed Schafer last week said it would come “within two weeks.”

The latest I see a decision coming is shortly after the July 11 Supply-Demand Report from USDA. In fact, several government and industry sources are flat-out predicting a CRP decision will come shortly after the July 11 S/D report. While the CRP decision is a long-term decision as well as a 2009-crop acreage issue, waiting for the Supply/Demand Report (WASDE) would at least give USDA officials some updated information on which to articulate whatever decision they make.That includes a survey-based estimate of the U.S. wheat crop.

Bottom line: USDA clearly made the wrong decision last year regarding not allowing early out for eligible CRP participants (based on the EBI). They counted on normal to good weather. They didn't get it by a long shot. He who gambles has to make a more aggressive move. But my calls from many of you signal a very wide range of how many acres could actually come out of the CRP, even if USDA announces an early out decision. And even USDA's guess will be just that -- a guess. There are good reasons why some CRP participants like the safety of that subsidy program, while there are near-term prices that are, indeed, attractive to pull some acres out of the program early, if allowed (although accelerating energy prices are often cited by many as a hindrance). And if an early out decision comes, any yield assumptions on those acres will have to be lowered from normal yields -- perhaps around 60 percent or so of normal yields. That means for any major impact, the number of potential CRP acres coming back into production would have to be higher than the 4 million to 8 million acres some of you told me you guesstimate could come out if USDA allows such exit without penalty.

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