No penalty-free early-out for CRP acres

Cattle Market & Farm Reports, Editorials
Aug 1, 2008
by DTN
USDA will not allow landowners to take acres out of the Conservation Reserve Program (CRP) early unless the landowner agrees to pay the normal early-out penalties for breaking a contract, Agriculture Secretary Ed Schafer said last Tuesday.
Schafer said the decision not to allow early out "strikes the best possible balance between supporting programs that protect our natural resources and meeting the nation’s need for grain production." The decision effectively means farmers wanting to void a CRP contract for 2009 crops would have to pay the USDA penalties to do so.
In choosing to stand pat on CRP, Schafer said USDA completed "a very thorough review" of recent crop reports, weather conditions, commodity prices, and the likelihood of more land going into production. All of those factors allowed USDA to stand pat when it came to the penalties.
"We realize we are in a situation that can change rapidly and quickly, but at this point in time, we are comfortable with the numbers we are seeing coming out," Schafer said.
The impact of Midwest floods earlier this summer does not appear as severe as earlier thought. USDA reports show the country should potentially produce the second-largest corn crop on record, with an anticipated harvest of almost 79 million acres, he said.
"We don’t feel the corn and soybean crops are going to be as bad as we originally feared," Schafer said.
The decision not to allow early out of CRP comes less than a week after a federal judge limited a special USDA program allowing summer and fall haying and grazing on CRP acres. The federal judge determined USDA could not make such significant changes to the CRP program without first doing an environmental impact statement as required by federal law.
Still, some agricultural groups and commodity end-users have been clamoring for USDA to tap the CRP program for more production acres. Conservation groups, wildlife groups and some farm organizations have argued the other way, maintaining the CRP is a conservation program and using that land for production could impact the environment and may not provide enough quality acres to alter commodity production.
"There are a lot of groups that feel strongly about this issue either way," Schafer said. "So if you want to count that as pressure, certainly we have heard the message on both sides of the equation here. But, you know, the reality is we have acres that are coming out of the program because of expiring contracts."
USDA reports there are now 34.7 million acres in the CRP, down from about 36.7 million acres last year. Schafer said another consideration was that the new farm bill maxes out the program authorization in future years at 32 million acres.
Schafer pointed out that as many as 9.3 million acres could potentially come out of the program between now and fall 2010. In late September, contracts for 1.1 million acres are expected to expire. The potential expired acres jump to 3.8 million in fall 2009, and 4.4 million acres in 2010.
"So, large blocks of land will be available for other purposes if landowners choose to pursue them," Schafer said.
The penalty for canceling a contract before it expires requires a landowner to pay back every single dollar received under that contract, including cost-share money and rental payments, plus interest. There’s also an additional penalty of 25 percent of one year’s rental payment.
High commodity prices and land values have prompted more landowners to take acres out of CRP early and put the land into production, despite the penalties. Over the past 19 months, landowners have paid penalties to pull out 288,726 acres from CRP, which included a high mark of 36,890 acres last May.
Senate Agriculture Committee Chairman Tom Harkin, D-IA, one of the architects of the CRP program in the mid-‘80s, stated last week he thought Schafer made a sound decision not to approve early outs. Harkin had complained that allowing early outs now would be unfair to producers who chose earlier to pay the penalties necessary to get out of the program. He said a more gradual transition would be a more sound decision "for conservation and everyone with an interest in CRP."
"Today’s decision also protects the public’s investment in conservation paid for through years’ worth of CRP payments," Harkin stated. "We already expect that millions of acres will exit CRP over the next few years as contracts expire and landowners choose to return the land to cropping." — Chris Clayton, DTN