Grain prices are telling Cornbelt farmers to plant every acre possible; whether that is corn, beans, wheat, hay, or whatever, there will be a good market for it. It seems increased demand for corn has squeezed acreage for other crops while global demand is increasing. So where do we find more land to plant? Well, at one time, about 35 million more acres were planted, but they are now in the CRP. What are the options here?

Despite a doubling of grain prices in the past year, planted acreage is only going to increase about 1% in 2008, and only 2.5% compared to 2006 planted acreage, when prices were well below current values. Iowa State University economists Bruce Babcock and Chad Hart say the lack of an acreage response to the higher prices indicates why biofuels have had the significant impact on commodity prices. And those higher prices will not fall until planted acreage increases.

With global food prices up, planted acreage will increase in many countries, such as Brazil, Argentina, Africa, and Eastern Europe, where land has been idled until now. In the US, over 35 million acres of land remains idled in the Conservation Reserve. But Babcock and Hart content that as CRP contracts expire, the land will return to production because revenue will exceed CRP contracts. That is a bit of the opposite when the CRP was created in 1986 and it was a secondary land retirement program designed to stabilize grain and land prices in the mid-1980’s recession.

As CRP contracts expire yearly, some will be renewed but Babcock and Hart suggest that owners will not opt for renewal to return the land into crops. And they surmise that might be as many as 20 million acres returned to cropland. Other owners will pay the penalty to break their CRP contracts, however penalties are stiff for the original CRP contracts, but minimal for CRP contracts just signed. Among the recently signed CRP contracts, the length of the contract related to the environmental sensitivity of the land. Ironically, the most environmentally sensitive land which received the longest contracts, would make the most sense for an early breaking of the contracts to allow planting.

Perennially, USDA receives pressure from livestock owners and the grain handling industry to phase out the CRP so more grain will be produced and grain prices can fall. That will likely recur this year, while environmental groups continue to lobby for CRP expansion. But Babcock and Hart contend that high grain prices will cause many CRP landowners to suffer the financial penalty and plant their land. If that is the inevitability, Babcock and Hart suggest:
1) USDA should reduce penalties for breaking contracts on the land that will expire in the next three years, which will not be as environmentally sensitive.
2) Some CRP landowners who just re-enrolled environmentally sensitive land will probably break their contracts to allow planting.
3) If USDA sees it is losing control of environmentally sensitive land, it could take new bids on the land, to enable that land to remain out of production, but at a higher cost that more closely parallels current land prices.
4) Re-bidding the land would also allow control over the environmentally sensitive land while opening up less sensitive land to grain production that satisfies the livestock industry.

Babcock and Hart acknowledge that re-bidding the CRP would draw criticism, but it would also address the needs of agriculture to provide both food and fuel at the same time. It would also keep expanded production in the US, rather than have it default to other countries.

Summary:
The Conservation Reserve has locked up 35 million acres that were once in production and could be returned to production to meet the food and fuel needs of the nation. However a systematic approach would be a re-bidding of the CRP contracts to return land to production that is less environmentally sensitive, but keep the most environmentally sensitive land in the CRP at contract prices parallel to current land values. Such a system would increase planted acreage more than 6% at a time when greater production is needed.