Corn crunch puts the squeeze on conservation program

Just a few miles up the road from Tony Thompson's farm in southwestern Minnesota, a big ethanol plant looms like a giant, waiting hungrily for Thompson's crop.

"I think half of my corn goes into very local ethanol production," says Thompson.

After years of low profit margins on his corn crops, Thompson has been thrilled to see corn prices skyrocket due to what many farmers call "the ethanol effect."

At the same time, Thompson has also been happy with his choice to enroll some of his land in the federal conservation reserve program, or CRP. He gets a payment to keep that land out of production.

Thompson turns off the dirt path that leads to his cornfields and cuts across a CRP land parcel, swishing through cream-colored dry grasses that look like long strips of paper.

Nearby, there's a marsh where loons and toads sing. The CRP land helps filter the water that flows off the cornfields to that marsh and allows wildlife to thrive. It's a big source of pride for Thompson.

"I just happen to love the Great Plains. And this part of it I can influence with my life's work," says Thompson. And the wetlands are part of it."

Even if Thompson wanted to pull any of the land out of CRP contracts to plant corn, at this point he can't afford to do so. That's because the penalties are steep.

"There are large tracts of CRP that would not be very good corn acres."

A number of agricultural groups have been calling on U.S. Agriculture Department officials to allow planting on CRP lands without penalties.

Kendall Keith, president of the National Grain and Feed Association, says that's the best way to solve a looming problem. Keith believes the ethanol boom is going to keep pushing up demand for corn -- and land to grow it on.

"Where's the land going to come from? If we're not going to let the CRP land come out, then the U.S. is going to have a difficult time competing in export livestock markets where we've seen growth in the past. And we simply need the grain to be competitive," Keith says.

For now, Agriculture Secretary Mike Johanns has said he will not allow any "early outs," because recent projections suggest farmers are planting enough corn to take care of demand.

But Kendall Keith is worried farmers will end up planting less corn than projected, and demand will keep rising, pushing up prices.

That view is echoed by other big national livestock groups whose members are complaining about high prices for feed. But several Minnesota livestock producers are skeptical.

"There are large tracts of CRP that would not be very good corn acres," says David Preisler of the Minnesota Pork Producers Association. "I think most people would feel that way. The early release of CRP would not be a savior for some of the corn supply issues we face going forward."

The chairman of the House Agriculture Committee in Congress agrees. U.S. Rep. Collin Peterson, who represents Minnesota's 7th Congressional District, says corn is finally getting a fair price. He also says it's no surprise national -- and not local -- agricultural groups are pushing for the early release of CRP lands.

"What's really driving this is these big guys in the export biz like cheap commodities," says Peterson. "They got addicted to these cheap prices, and it's going to cause them problems in the export market. This is repricing agriculture. I think we've been selling our farm products too cheap."

For the time being, it seems more likely that farmers who want to farm CRP lands will simply let their contracts run out rather than pay a penalty.

But even for a farmer like Tony Thompson, who enjoys the environmental benefits of his CRP acres, there could be a point at which he'd be willing to pay the penalty.

"If it becomes more profitable to switch to growing corn where I currently have CRP, and the profits from growing corn would allow me to buy my way out of the CRP contract, I certainly would do that," he says.

But for that to be the case, Thompson says corn prices would have to shoot much higher. And it's unclear if and when that will happen.

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