On May 5, 2016, USDA’s Farm Service Agency (FSA) announced the results of the latest sign-up for the Conservation Reserve Program (CRP), the 49th general signup in the program’s distinguished 30-year history. About 1.8 million acres were offered for this year’s general signup, and only 411,000 acres were actually enrolled, making it the most selective round ever with only a 23 percent acceptance rate. In contrast, for the 45th general signup in 2013, USDA accepted nearly 90 percent of the acres offered under the general signup procedure.
As of March 1, 2016, 23.8 million acres were enrolled in the program, with CRP contracts on 1.65 million acres scheduled to expire as of September 30, 2016, the end of the current fiscal year. The current acreage cap on the program is 24 million acres, established under the 2014 farm bill. The current area under CRP is 35 percent below the peak enrollment of 36.8 million acres, which occurred in 2007.
The ratcheting down of the cap occurred during a period when policy makers were confident that higher crop prices had lessened farmers’ interests in retiring cropland. Using a statutory reduction in permitted enrollment of acres was the only way the Congressional Budget Office (CBO) would allow Congress to capture budgetary savings from the anticipated change in farmers’ behavior.
In the face of declining crop prices over the last few years, farmers are clearly struggling to find a scenario under which they might actually be able to generate a profit. Many market analysts were shocked by USDA’s estimate in its March 31st Prospective Plantings report that farmers would plant 93.6 million acres of corn in the 2016/17 crop year, an increase of 6 percent over the previous year despite facing a price that has dropped by more than 50 percent over the past three years. Overall, the report indicates that U.S. acres planted to grains, oilseeds, and cotton will decline by less than 1 million acres as compared to the 2015/16 crop year, suggesting that farmers have few choices other than to grow a crop, even though at current prices most crops will generate less market revenue than it cost to plant them if one includes fixed costs in the calculation.
According to a cost of production spreadsheet for cultivating no-till corn after soybeans prepared by the Iowa State Extension Service, the average cost of producing a bushel of corn for 2016 in the state (variable and fixed) is $3.98 per bushel. As of the May 2016 World Agricultural Supply and Demand Estimates (WASDE) report put out by USDA, the mid-point of the projected corn price for 2016/17 is $3.35 per bushel. If an Iowa farmer averages 180 bushels per acre for corn, the current price would yield that farmer a $113 loss for every acre planted.
No wonder the prospect of receiving a rental payment for retiring one’s land under the CRP for 10 to 15 years, even at only $51 per acre on average for land under general sign-ups, is seen as a viable option right now for many farmers. If that action also generates environmental benefits, such as improved water quality, improved wildlife habitat, and improved air quality, that is also an attractive feature for farmers, most of whom really care about the land they farm on.
However, not only is the current cap of 24 million acres 47 percent below the 45 million acre level established under the original authorization in the 1985 Food Security Act, the creation of special categories under the program, such as state-based Conservation Reserve Enhancement Program (CREP), and the continuous CRP process that allows certain types of land such as buffer strips or farmable wetlands to be enrolled at any time, has reduced the number of acres that can be enrolled through general sign-ups. As of March 1, 2016, there were 6.5 million acres under contract through these special categories, leaving ‘cap space’ for only 17.5 million acres for regular cropland or grassland to be enrolled.
Over its lifetime, CRP has generated numerous environmental benefits for the country. USDA has compiled the following figures:
- The CRP has prevented more than 9 billion tons of soil erosion since 1985, which is enough to fill 600 million dump trucks,
- Each year, CRP has reduced nitrogen runoff on tilled cropland by 95 percent, and has reduced phosphorus runoff by 85 percent,
- CRP has created nearly 2.7 million acres of restored wetlands, and
- CRP has resulted in the sequestration of an annual average of 49 million tons of greenhouse gases, which is equivalent to taking about 9 million cars off the road.
If crop prices remain low, Congress may want to reverse the downward pressure that it has been putting on the CRP acreage cap for the last decade in the upcoming farm bill. If managed correctly, a 30 million acre CRP can generate a lot more environmental benefits, including reduction of greenhouse gas emissions through broader use of climate-smart practices, than can a 24-million acre program, and also serve as an improved safety valve for crop farmers.