Future changes in the Conservation Reserve Program
At the end of this month, contracts covering 3.3 million acres currently enrolled in the Conservation Reserve Program expire and contracts covering nearly 1.7 million acres go into effect. This is a net reduction in the size of the program of 1.62 million acres. Stronger crop prices and high rents for crop land are reasons for the decline in the amount of land enrolled. This week we look at how the size of the CRP might change in the next couple of years if the ratios of land offered and accepted in future sign-ups are similar to what happened in 2013.
The future of the Conservation Reserve Program (CRP) can be impacted by changes in the law, budget pressures and the level of environmental benefits that can be achieved through the program. Since Congress has been unable to pass a new farm bill, the cap on the CRP remains at 32 million acres. However, the cap is expected to be lowered to 25 million when or if a new farm bill is signed into law. With the changes set to take effect at the end of the month, a total of 25.3 million acres will be enrolled in the program. One of the reasons Congress is lowering the cap on the CRP is to save money. With 32 million acres enrolled at the current average rental rate the program costs nearly $2 billion per year. The cost of a 25 million acre program is near $1.5 billion per year. USDA decides how much of the land offered for the program to accept based on an Environmental Benefits Index in an effort to get the most “bang for the buck.”
USDA held a general sign-up this spring and farmers offered a total of 1.9 million acres for enrollment in the program. This was about 58 percent compared to the land with expiring contracts. There are no data showing how much of the land offered was in fact the same land covered by expiring contracts, but it is probably a very high proportion. Land with a high environmental benefits index tends to be re-enrolled and many landowners that enrolled their land in the program years ago have retired from farming. A CRP contract takes all of the risk out of farming with a guaranteed payment every year. A lot of the land in the CRP is in the Plains states. Annual rainfall in this part of the country can be erratic leading to big swings in yield and cash flow, which make the CRP an attractive option.
Crop prices were high when USDA held their spring sign-up. Corn prices were near $7 per bushel, soybean prices topped $15 per bushel and the wheat price was $7.55 per bushel. The high prices probably tended to reduce the amount of land offered for the CRP. In the signup in the spring of 2012 the amount of land offered for the CRP was equal to 70 percent of the land with expiring contracts. If crop prices are lower in 2014 and 2015, the amount of land offered for the CRP would probably increase.