Grains Oilseeds

[KastelCo]

Barrons had an article about the CRP program, which I have mentioned here before. I believe there are a couple of points missing from the article. The main point that is missing is that land in the program was marginal to begin with and, from a financial perspective, still could be marginal because of the high cost of diesel and petrochemicals. Fifty dollars an acre isn't bad when you have very few input costs.

I think the other point to make is that the US press tends to look at production within the US without examining what is going on internationally. Overall, world production has increased from 589.9 mmts. in 98/99 to 603 mmt in 17/08. So there hasn't been a dramatic increase in production except in what is designated as the FSU-12. These are countries that were formerly a part of the Soviet Union. Production in these countries has increased from 56.1 mmts. to 93.49 mmts. in the same period. Their dramatic increases in production has remained fairly static, however, since 2002. My opinion, which is limited at best, is that if dramatic increases in production are to occur, they will be the result of increases overseas. Here is the article:

A DECADES-OLD SUBSIDY PROGRAM that pays farmers not to plant is losing its appeal amid record-high crop prices. The Conservation Reserve Program was designed to save soil from being over farmed and keep environmentally sensitive land out of production, government officials say. The lure of hot money is putting more land to work, but a slow bureaucratic process and financial penalties impede early withdrawal. Therefore, hoped-for U.S. acreage expansion will be limited, likely keeping crop prices in the stratosphere.

Unless, of course, President Bush's administration bows to pressure from livestock producers to allow an early release of acreage from the no-planting regime -- something officials have repeatedly promised to consider.

Burgeoning corn use for ethanol production has pumped up prices from corn to cotton as crops fight for land. The U.S. Agriculture Department sees total 2008 cropland at 252 million acres, up seven million acres, or about 3%, from 2007's figure, as more acres exit the CRP and farmers reallocate land.


Uncle Sam now pays producers to not farm 34.6 million acres under the CRP, down from the 37 million last year. But there are questions about how much of that land is really suitable for crop production. Much idled CRP acreage wouldn't be fit for farming, says Wachovia Securities grain analyst Bill Nelson, yet he thinks that nearly half could sprout wheat, corn or soybeans if farmers were to seed it. Indeed, recent USDA data show nearly 10 million acres of high-quality farmland in the CRP, along with another 15 million lower-quality but plantable acres.

Although farmers were offered the option to stay in the CRP, they allowed land-idling contracts on about 2.6 million acres to expire in September 2007 and are scheduled to take 1.3 million more out of the program this September and 3.9 million in fall '09, says John Johnson, a USDA deputy administrator. Discouraging a quick exodus: Breaking CRP contracts can carry steep financial costs for farmers who don't fulfill their 10-to-15-year terms. USDA officials say the average rental payment to participating farmers is $50 an acre, and a farmer would have to refund all proceeds for the life of the contract to get out.

Meanwhile, prices for corn, wheat and soybeans remain in historically high ranges, even though corn and wheat eased last week. Chicago Board of Trade corn ended the week at $5.91 a bushel, down 6.1%; wheat was at $7.75½, off 3.6%; and soybeans settled at $13.78, up 1.5%. Demand for grains, particularly corn for ethanol production, shows no slowdown -- meaning that prices could keep ascending. That could lead more farmers to consider leaving the CRP program.

In addition, livestock producers, who are choking on higher feed costs, have urged the USDA to suspend penalties for farmers who want an early exit from the CRP to quickly get more land into production. But Bush administration officials have said that option was considered but rejected.

This summer, the USDA will tentatively revisit allowing early release of CRP land, but any decision would be too late for this year's plantings.

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