PULLMAN, Wash. — Economic impacts of the announced 60 percent drop in Washington acreage covered by the Conservation Reserve Program for the 1998 crop year will vary widely from farmer to farmer and from community to community, according to Washington State University agricultural economists.
The state’s wheat industry reacted strongly to word last week that the U.S. Department of Agriculture had accepted only 171,946 acres of cropland offered by Washington landowners for ten year contracts beginning with the 1998 crop year. Landowners had asked for contracts on 819,377 acres in a national bidding process.
Washington currently has 1,020,458 acres under CRP contract to help preserve highly erodible land and protect the environment.
The Washington Association of Wheat Growers and the USDA Farm Service Agency for Washington have asked for an investigation of the USDA formula that appears to have penalized Washington, which had one of the lowest acceptance rates of contracts offered under the program.
If no adjustment is made in the contracts announced May 22 by USDA, Washington’s CRP contract acreage will drop from 1,020,458 this year to 406,199 in 1998.
USDA’s Farm Service Agency in Spokane hadn’t yet compiled final figures on the value of accepted contracts, but estimates based on current contracts show that the state could lose about $32.8 million in CRP payments. This is based on the fact that annual rental payments now total $51,404,035, about $50 an acre. In 1998 Washington will have fewer acres and new contracts are expected to average less than $40 an acre.
In the bidding process, landowners say how much per acre they will accept to hold the land out of production and protect it from erosion by growing a cover crop, typically grass.
WSU Agricultural Economist Leroy Blakeslee said the national average rental rate under CRP has been about $50 an acre. It appears that new contracts will be going at less than $40. “At today’s (wheat) prices some growers can make that kind of money with production. It (CRP payments) was a fair trade for many, in terms of income potential; but for some, the program was more profitable than cropping.”
Blakeslee said during the past ten years wheat prices have been “all over the place.” During the last two years prices have been favorable for farmers and he expects prices for this year’s and next year’s wheat crop to remain good.
This makes it a relatively good time for farmers to take land out of CRP if they want to, or have to.
Individual and local hardships notwithstanding, Blakeslee said state- wide impact will be minimal.
Will the loss of 614,259 acres under CRP contracts affect wheat prices?
“I don’t think so,” Blakeslee said. Other factors, such as the size of the 1997 crop and projected carryover supplies into 1998, are much more significant.
Blakeslee said the world market is coming into the 1997 crop year with relatively little world-wide carryover. “The crop harvested this summer is not going to leave a huge amount of carryover world-wide in May of ’98,” he said. “It’s going to be lower than average by world standards. I don’t see the makings of a glut out there.”
Regardless of yields and prices, the acreage that Washington farmers will return to production is only slightly more than a tenth of one percent of world wheat acreage, not enough to influence world prices, Blakeslee said.
Jon Newkirk, WSU extension economist and leader of the university’s CRP education program, said local and individual impacts are another matter.
WSU Extension Economist Herb Hinman said loss of CRP contracts will be a heavy blow to farmers in low-yielding, low-rainfall areas of the state who have a significant amount of acreage under current CRP contracts.
“The low-rainfall farmers are going to get hit, and hit hardest,” Hinman said. “It’s going to be a real hardship on them.”
Newkirk estimated that more than 70 percent of the acres coming out of CRP lies in areas where farmers get a crop only once every other year, or two out of three years, because of low moisture. It’s very unlikely these farmers will be able to equal CRP payments by growing wheat.
Newkirk said the highest-risk group would be those farmers who put all of their land in CRP ten years ago and must now take it out because their offers weren’t accepted.
Some of these farmers are essentially retired and may not even have the equipment to farm the land coming out of CRP. Their choices are to get back into farming (which may not be feasible) or to lease or sell their land. And this is where they could be badly hurt.
Newkirk said if a lot of CRP land is put up for lease or sale, owners may face a depressed real estate market. The poorer the quality of their land, the more difficulty they may have finding a leaser or buyer.
No one knows how much demand there will be for farmland under changing economic conditions. Newkirk said all government payments could end in the year 2002. This could dampen farmers’ enthusiasm for buying additional land between now and then.
Banks also have changed the way they evaluate land loans. In the mid 1970s when wheat prices were high, farmers found it relatively easy to get loans to expand their farms because their land was evaluated on its potential increase in value. When wheat prices dropped, many had difficulty meeting land payments.
Today bankers look carefully at a farmer’s cash flow, which can make it more difficult to get loans.
Newkirk also sees problems for farmers in low-rainfall areas who have to return CRP land to production. “Some of this land will come back into production,” Newkirk predicts. “I believe their net per-acre income will be less farming it than they would have gotten under CRP.”
Hinman notes that farmers who take land out of CRP face higher costs than on land that has been under cultivation, even if they have the necessary equipment.
This is primarily due to the cost of removing the grass cover crop, which will eat into any profits on the first-year crop.
Newkirk believes the loss of CRP acreage will add momentum to the continuing trend towards larger and larger farms. Smaller farmers may not have the resources to buy land placed on the market because it has to come out of CRP, but larger farmers probably will be able to buy it.
One of the factors that will influence the impact of a sharp decline in CRP land on local economies is the question of how much land is being removed from contract and returned to production.
Adams County has the highest number of current contracts in Washington and the most acres under contract. It currently has 786 contracts and would have 265 for the 1998 crop. Newkirk said basically one contract represents one landowner, but in a few instances a single owner may have more than one contract.
Farmers in 20 Washington counties currently have CRP contracts. If there is no change in contracts announced earlier this month by USDA, farmers in 18 counties will have CRP contracts.
Adams County will drop from 786 contracts covering 209,131 acres to 265 contracts covering 78,445 acres. The Washington Farm Service Agency said data has yet to be compiled on the bids accepted or rejected by USDA in May.
No one will know until the 1998 crop is sold whether the farm economy will lose anything. If farmers put the land back into production and yields and prices are good, the local economy may receive a boost. If the market isn’t favorable, the economy could suffer.
Whatever the economic impacts of the new program, Blakeslee notes they are side effects resulting from adjustments in the formula used to achieve CRP’s purpose, which is improvement of environmental quality.
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