 "This concern may not subside until a clearer picture of 2008
U.S. and world production prospects unfold," said Darrel Good.
"While the current focus is on acreage, prospective yield will
become the focal point later in this spring."Crop prices
should continue to be well-supported, but perhaps in a wide
range, for the foreseeable future."
Good's comments came as he reviewed high crop prices and the
CRP. Continued strong demand for U.S. crops, prospects for low
levels of year-ending stocks and uncertainty about the size of
world crops in 2008 are keeping crop prices at very high levels.
"As I noted last week, a case can be made that the United
States needs to devote a total of 5 to 6 million more acres to
corn, soybean and wheat production in 2008," he said.
"The obvious question is: Where does such an increase come
from? Part of the increase would come from reduction in other
crops. If the reduction comes from other feed grain or oilseed
crops, the effect might be an increase in demand for corn and
soybeans, resulting in no net advantage."
That type of switch, he added, would not ease the potential
supply shortage. A modest reduction in forage and grassland
might be possible.
"Increasingly, the CRP is being eyed as a potential source of
increased cropland in the near future," he said.
Contracts on 5.1 million acres enrolled in the CRP expired on
Sept. 30, 2007. New contracts were established for 2.6 million
of those acres, so that 2.5 million acres left the program. As
of December 2007, the USDA's Farm Service Agency reported
753,000 CRP contracts for a total of 34.6 million acres.
"There are basically two ways for additional acreage to leave
the program," Good explained. "One would involve an
administrative or legislative decision to allow early
termination of existing contracts without financial penalty to
the landowner.
"Landowners, then, would have to be willing to withdraw
acreage from the program and devote those acres to crop
production. Theoretically, such action could be taken before the
spring 2008 planting season, but seems highly unlikely."
The second method is for landowners to return current CRP
acreage to crop production upon expiration of existing
contracts. That decision could be influenced by an
administrative decision about whether to offer the landowner an
opportunity to re-enroll the acreage in the CRP and the level of
rent to be paid on that acreage.
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"The persistence of high commodity prices would likely force CRP
rents to be significantly higher in order to compete with the
potential profitability of crop production," he said. "Additional
CRP contracts will not expire until Sept. 30, 2008. Contracts for
only 1.3 million acres expire at that time. Nearly half of those
acres are in five states -- Iowa, North Dakota, South Dakota, Texas
and Washington.
"Contracts on an additional 3.9 million acres expire on Sept. 30,
2009. Currently, there appears to be little administrative support
for early termination of CRP contracts, implying that additional
cropland acreage -- beyond the expired CRP contracts of 2007 -- will
not be available in 2008, and only a small increase might occur in
2009."
The USDA's baseline projections, developed late last fall but
only released last week, contained a projection for a sharp increase
in planted acreage of the eight major field crops in 2008. That
projected combined acreage for corn, sorghum, barley, oats, wheat,
rice, upland cotton and soybeans was at 252.6 million acres, 6.1
million more than planted in 2007.
"Only 1.3 million acres of that increase was expected to come
from land leaving the CRP," Good noted. "In total, 2008 CRP acres
were projected to be only 2 million less than in 2007. Presumably,
4.8 million of the additional 6.1 million acres devoted to the eight
major crops would come from reductions in other crops, including
grassland."
The USDA baseline projections of acreage by crop in 2008 are not
especially helpful due to the change in market conditions since last
fall. For example, the projected 5.6-million-acre reduction in corn
plantings in 2008 was made when carryover stocks at the end of the
current crop year were projected at nearly 1.9 billion bushels.
"With year-ending stocks now projected at 1.438 billion and
consumption occurring at a faster rate than projected, a larger 2008
crop is required than appeared necessary last fall," Good said. "In
addition, the projected U.S. average corn yield for 2008 was 155.3
bushels per acre. That projection was made when the 2007 yield was
thought to be 153 bushels, rather than the 151.1 bushel final
estimate.
"Such a large decline in acreage would likely result in a supply
shortage and higher prices."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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