FSA is opening Conservation Reserve Program sign up.
Local Market Conditions
Conservation Reserve Program (CRP)
The Farm Service Agency is opening Conservation Reserve Program (CRP) enrollment December 11, 2020 – February 28, 2021. CRP is a land conservation program in which in exchange for an annual rental payment, enrolled farmers agree to remove environmentally sensitive land from agricultural production. Enrolled farmers also agree to plant species that will improve environmental health and quality. CRP contracts are typically 10-15 years in length, with the end goal of improving water quality, preventing soil erosion, and reducing loss of wildlife habitat.
The enrollment requirements from FSA state that land must be cropland (including field margins) that is planted, or considered planted, to an agricultural commodity four of the six crop years from 2013-2018 [*Note: Years included from previous enrollment period fact sheet which stated 2012-2017; Assume updated years based on time elapsed], and be physically and legally capable of being planted in a normal manner. In order to be eligible that cropland must additionally meet one of three criteria:
- Have a weighted average erosion index of eight or higher;
- Be expiring CRP acres or;
- Be located in a national or state CRP conservation priority area.
While land may be eligible for enrollment, eligibility does not necessarily mean acceptance. Acceptance of land into the CRP is largely a function of the land’s Environmental Benefits Index (EBI) and the producer’s bid into the program. For example, certain practices make acceptance into the CRP program more likely, though those practices may prove more costly to establish while not actually changing the rental rate. Upon the conclusion of the enrollment period, FSA ranks all bids into the CRP program based on a combination of the EBI and bid. Land meeting a certain threshold within the ranking is accepted.
In return for establishing conservation practices on enrolled land, FSA provides rental payments to producers. FSA rental rates vary based on the county and practices established on a given set of acreage. Producers may estimate the maximum rental rate by working with their local FSA office and bid that rate or lower. Lower bids increase the likelihood of acceptance, though you do receive lower payments.
The economic ‘brass tacks’ of the decision to enroll in CRP is whether or not current crop production offers a higher net return than the CRP rental rate bid. A few factors go in to this determination. The first factor to consider is the rental rate compared to the returns above variable costs for different enterprises. Consider the figure below.
CRP Average County Rental Rates 2020 and Expected Returns Above Variable Cost for Various Enterprises, Texas High Plains ($/Acre)
As you can see, the average county rental rate for CRP exceeds the net return above variable cost for all enterprises included. In fact, returns from CRP exceed the commodity offering the second-highest returns by approximately seven times on average. These comparisons are slightly off, as prices for commodities have changed substantially since AgriLife posted the 2020 budgets. For example, the price of cotton lint in the budgets for AgriLife District 1 is listed at $0.66/lb. That price was set in November 2019; the price now sits around $0.70/lb. Though the 2020 price of wheat set in 2019 ($4.62/bu.) was for a crop which has been harvested, the price for the 2021 crop will likely be substantially higher. In fact, the price of Kansas City Wheat for July ’21 currently sits at $5.72/bu. Conversely, calf prices are lower than expected when the budgets were set in 2019.
This comparison is slightly skewed in a second way as the returns above variable costs for production are being compared to average revenues from CRP. Unlike the persistent rumor that pops up in some outlets from time to time, CRP is not a ‘payment to do nothing’ and depending upon the practice selected there may be significant cost to establish CRP acreage. This is where the difficulty in addressing complex programs in a short blog post arises. There are too many combinations of CRP practices to address in a short-form piece. Needless to say, establishment of CRP acreage on land that is currently being farmed will require some investment. Up to 50% of the cost of establishing those practices may be shared with USDA. After amortizing the initial investment over the 10-15 year CRP contract, enrolling in CRP may still yield higher net returns than cropping/running cattle.
I highly encourage you to evaluate this decision for yourself. Crop prices are currently higher than earlier in the year, but some of that may be due to outsized purchases from China. Whether those purchases continue to buoy prices, or continue to occur at all is unknown at this point. There are certainly other fundamentals at play, and it is important to remember that CRP is a guaranteed set price for a minimum of ten years. In order to more accurately assess the cost of establishing CRP, take a look at ‘After the Conservation Reserve Program: Economic Decisions with Wildlife in Mind’, an AgriLife publication that lays out some costs, like the ones below, of wildlife enhancement practices. Most importantly though, it is vital to visit your FSA office to understand all the aspects of CRP enrollment as there are provisions like emergency haying and grazing that I have not even touched.
Select Figures from ‘After the Conservation Reserve Program: Economic Decisions with Wildlife in Mind’