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Corn, Soybeans and the Conservation Reserve Program By James D. Ritchie
Corn prices will put pressure on retiring CRP acres.
Last fall, U.S. growers hauled in the second-biggest corn crop ever. Despite the whopper crop, 2006 corn production will fall nearly a billion bushels short of potential use, according to USDA’s utilization projections.
“Our balance sheets show a 1.1 billion-bushel gap between production and use,” said Robert Wisner, Iowa State agricultural economist. “It may be a little harder to ration livestock feeding and export demand than indicated in the official numbers. Either way, these numbers plus the 1.6 to 1.7 billion bushels of new ethanol plant capacity now under construction signal that a lot more corn acres will be needed for 2007 and for the next few years.”
Where will those acres come from? About the only possibility is that corn will bid acres away from soybeans and other crops, or draw acres out of the long-running Conservation Reserve Program.
“Strong wheat prices are expected to lead to bigger wheat plantings, especially in hard wheat country,” said Melvin Brees, agricultural economist with the Food and Agriculture Policy Research Institute at the University of Missouri.
In Missouri, about 1.6 million acres are in CRP. But most CRP contracts have another year, at least, before they expire, which limits those acres that could be shifted into corn production. And many landowners with CRP contracts expiring in the near term have already extended or re-enrolled.
“A year ago, eligible landowners with CRP contracts expiring in 2007 were given the option of either extending or re-enrolling,” said Michelle Motley, with the conservation section of Missouri’s Farm Service Agency.
“More than a year ago, USDA adjusted the rates for new contracts to make CRP payments more in line with crop rentals in each county. Most went up.
“CRP contracts expiring in 2008, 2009 and 2010 were re-negotiated late in 2006 and most landowners either extended or re-enrolled their CRP contracts,” Motley added.
“There’s a lot of resistance among conservationists, hunters and bird watchers to taking much land out of CRP,” said Dale Ludwig, executive director and CEO, Missouri Soybean Association, who notes that populations of such shrubland birds as bobwhite quail have thrived on land enrolled in CRP.
That leaves only soybean acres as a possibility for much corn expansion. Melvin Brees noted that when soybeans yield 35 percent of corn yield, the “equilibrium” price ratio of corn to beans needs to be about 2.2 or 2.3 to 1. In other words, when corn is $2.50 per bushel, soybeans need to be $5.60 to $5.65 to be competitive for the grower—at least on a price comparison basis. That ratio strongly favors corn right now.
“There’s one other source of potential crop land that people aren’t talking about much: high-end pasture land,” said Brees. “Especially if cattle prices go relatively lower, we could see some current pasture shifted to crops. It’s happened before—back in the 1970s.”
There are yield downsides with corn grown on land coming out of CRP, or with corn following corn. Land that has been idled for 20 years or more will not be as productive—at least for a few growing seasons. And corn following corn takes a yield hit compared with corn grown after a soybean crop. For one thing, the atmospheric nitrogen fixed by a bean crop will need to be replaced with commercial nitrogen. Continuous-corn growers also can expect more problems with weed and insect pests.
Longer term, the big question for corn producers is what’s going to happen to fuel prices? Ethanol markets hinge directly on petroleum prices. If something causes oil prices to plummet, the fortunes of ethanol could suffer. Three-dollar corn and $30 crude oil cannot co-exist indefinitely.
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