Most of Idled Farm Land In U.S. to Remain Fallow

Wall Street Journal
November 20, 2006
By BILL TOMSON

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U.S. government officials were expecting record defections next year from a land-idling program due to strong corn and wheat prices, but it's looking like most of that acreage will stay in the program.

About 16 million of the 37 million acres the U.S. Department of Agriculture pays farmers to leave fallow are scheduled to come out of the program in 2007. USDA officials, fearing a mass depletion of its Conservation Reserve Program, began contacting farmers two years ago to see if they wanted to re-enroll.

Those efforts are now bearing fruit, although some USDA officials are expressing surprise given the rapidly growing demand for corn as the U.S. ethanol sector continues to boom.

Preliminary data compiled by USDA show that of the 16 million acres scheduled to come out of CRP, about 13 million acres will stay in through re-enrollment or contract extension. The program allows USDA to pay farmers nearly $2 billion per year to keep environmentally sensitive land out of production.

Speaking about recent re-enrollment efforts already completed, USDA Deputy Secretary Chuck Connor said he was surprised at the lack of desire for land owners to put those acres back into production.

"Frankly, with higher prices we were expecting a substantial number of producers to choose the opportunity to go back and produce," Mr. Connor said. "Right now it appears...that producers still want to retain that option to stay in CRP."

The roughly 81% retention rate USDA officials are expecting next year would be about average during re-enrollment periods, but wholly unexpected in the current climate of high farm prices.

Many of the farmers with contracts that expire in 2007 haven't yet "signed the dotted line," and may yet decide to grow crops, though, said a USDA official on condition of anonymity.

Corn farmers are averaging $2.80 to $3.20 for a bushel of corn this year, according to USDA data, as much as $1.20 more than last year's average of $2.00. Farm prices for wheat this year will average $4.15 to $4.55 per bushel, up from the $3.42 average last year.

Chicago Board of Trade December futures prices settled at $3.5525, near 10-year highs Friday. CBOT wheat prices were at 10-year highs earlier this year due to concerns about global supplies. December wheat settled at $4.74 a bushel Friday.

High prices may not do land owners any good, though, if they don't have the equipment to farm or their fallow property is unfit for production, USDA officials theorized.

USDA Secretary Mike Johanns said Tuesday that many of the acres in the CRP aren't viable for corn or wheat production. He acknowledged a study performed by USDA Chief Economist Keith Collins that showed there are four million to seven million idled acres that would be viable for planting corn.

Much of the CRP land is indeed of marginal quality at best for farming, said American Farm Bureau Federation Senior Economist Terry Francl. Even if the land was once optimal for planting crops, lack of care over time makes it extremely hard to bring back into production.

USDA's Mr. Connor also suggested the possibility that many land owners "don't even have the capability anymore to farm because they may be completely out of the farming business because they've been in CRP."

Even so, kicking acres out of CRP has become a popular suggestion by farm sectors that depend on corn products and which are concerned about rising demand.

Concerns from ethanol and livestock producers -- two major corn consuming sectors in the U.S. -- are growing about the future availability of affordable corn. A frequent suggestion is pulling acres out of CRP and putting them to use for corn production.

There are 106 ethanol plants already in operation, an additional 48 plants are under construction and seven are undergoing expansion, according to the Renewable Fuels Association. Current ethanol output is five billion gallons and with expected new capacity, it could add another 3.5 billion gallons.

Write to Bill Tomson at bill.tomson@osterdowjones.com

NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving this information for research and educational purposes.

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