By ANN HINCH
Assistant Editor

WASHINGTON, D.C. — Despite making an allowance earlier this summer for emergency livestock grazing on Conservation Reserve Program (CRP) land in states and counties hit by June floods, USDA Secretary Ed Schafer backed away from going further last week, by denying requests to release CRP acres early without penalty.

Landowners contract with the USDA to keep CRP land free of farming activities, for erosion control and wildlife habitat; in exchange, they receive a lease stipend.

Early withdrawal from a multiyear contract
requires the landowner pay back the rent received to date, plus a 25 percent “early out” penalty fee.

In a press conference July 29, Schafer said he factored crop reports, weather conditions and recent price trends in the commodities market into his decision.

“Despite the damage and disruption caused by the very severe floods that hit the Midwest last month, the indications so far are that the impact on this year’s corn and soybean crops will be less than was originally feared,” he said from a prepared statement.
He added the United States is still on track to have its second-highest corn harvest on record, at 79 million anticipated acres – without CRP land. He said cash prices in the futures market are down 25 percent from record highs in June (and 14 percent for soybeans), partly because flood losses are not as great as originally feared.

“We’ve heard the message on both sides of the equation, here,” Schafer said, referring to requests from farming and environmental groups to either release or retain CRP acres, depending on the individual organization’s goal.

He explained the 2002 farm bill required a lowering of caps on CRP land anyway, and that over the next two years, 9.3 million of more than 34 million acres will age out of contracts – this includes 1.1 million acres next month, 3.8 million in September 2009 and 4.4 million in September 2010.

“Large blocs of land will be available for other uses, if landowners wish to use them,” he said, adding the financial penalty has not stopped landowners in the past couple of years from removing some of their CRP land. “Where this option makes economic sense for landowners, clearly they are willing to take (the penalty).”
John Johnson, deputy administrator for farm programs through the Farm Service Agency (FSA), said this year’s withdrawal of CRP acres from contracts are 50 percent higher than last year’s. In April and May alone, landowners bought more than 70,000 acres out of contracts. In the past 19 months, the monthly average of buyouts has been 15,200 acres, or a total of 288,726 acres as of July 29.
Johnson said Plains States, with high wheat production, have a high percentage of land aging out of the program in the near future. He also said the USDA has advised FSA county committees to update local land rental rates.

“We have no plans at this point in time for doing a new enrollment for CRP acres,” Schafer said, adding the USDA knows grain and oilseed stocks are tight and even minute weather changes can cause problems.

Reaction, of course, was mixed. The National Assoc. of Wheat Growers (NAWG), in a statement, acknowledged that OKbakers’ groups have been in favor of penalty-free early-outs to boost production and ease commodity prices. But it also stated that NAWG itself “has been vocally opposed to CRP early-outs without contractual penalties.”

NAWG also stated it supports emergency haying and grazing on CRP land. A group likely to agree with that is the National Pork Producers Council (NPPC). But the NPPC was predictably disappointed with Schafer’s decision and also blamed increased ethanol production for driving up corn prices and contributing to its shortage as a feed grain.

“We are cutting back our swine herd and production by as much as 10 percent over the next several months, and even then we will need more acres and more corn in 2009 to meet the demands of ethanol producers and other users and to feed this smaller herd,” said NPPC President Bryan Black, from Ohio.

Florida commodities market analyst and advisor Shawn Hackett said in his opinion, many market speculators and farmers were actually hoping for this kind of non-decision.

“There was a tremendous amount of fear that there would be some drastic measure that the government would take” to try to correct for a volatile futures and cash market, he said, adding if more acres were planted, it could bring prices down – something neither investors nor many commodities farmers particularly want.
He also said that having corn prices drop recently likely removed pressure on Schafer to green-light penalty-free early-outs – and also, to make such a major decision in an election year.

Hackett added that every July, there is this kind of worry in the commodities market while everyone “holds their breath” for successful corn pollination – and that the market self-corrects afterward. Finally, he believes all the land in CRP may not be the best for planting high-demand commodities. “People forget, there was a reason those acres were put in the CRP,” he said.