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Lost Income or New Opportunity?

Three Producers Discuss the Options for Retired CRP Land

Landscapes Summer 2010

Last fall, the United States released 2.7 million acres of agricultural land from the federal Conservation Reserve Program (CRP). This included more than half a million acres in Texas, the biggest CRP state. For many farmers and ranchers, this represents a loss of CRP rental income.

Jim Byrd, Darryl Brightbill, and Scott Weinheimer

Read why Jim Byrd, Darryl Brightbill, and Scott Weinheimer purchased CRP land

Photos by Russell Graves

 


But it also may present opportunity, as an increasing amount of former CRP land becomes available for grazing or crop production.

Landscapes magazine talked to three West Texas agricultural producers who purchased land that was released from the CRP last fall. Each producer wanted to expand, and each obtained financing from Panhandle-Plains Land Bank to do so. Their decision-making process, outlined in the accompanying articles, might help you decide whether to farm or purchase former CRP land.

Landscapes also asked several experts which factors to consider, and how CRP changes may impact land values.

Jackie Smith, professor and Extension economist with Texas AgriLife Extension Service in Lubbock, doesn’t expect more than 25 percent of expiring CRP acres to be cropped this year. His expectation increased recently due to favorable rains and strong cotton prices.

The USDA Natural Resources Conservation Service (NRCS) held meetings across the High Plains to help farmers decide what to do with CRP acreage. Manuel DeLeon, wildlife biologist for NRCS in Texas, predicts: “The number of acres going back into production will not be as high as one might expect.”

Still, over the next three years, CRP contracts will expire at a growing rate. Nationally, this fall, another 4.5 million acres will come out of the program, including 670,685 acres in Texas. Expiring CRP acreage will peak in 2012, unless USDA changes its plans. A tight federal budget and higher commodity prices contributed to USDA’s decision to cut the CRP. 

Can You Make a Living on It?

The shift especially affects West Texas and other areas that have highly erosive land, according to Micky Woodard, chief of the Conservation Division of the USDA Farm Services Administration (FSA) for Texas. FSA administers the CRP program in cooperation with NRCS.

Most contracts expiring now lasted at least 10 years. “Farmers with land coming out are asking, ‘Now where do I go?’” Woodard says, adding that CRP land is primarily dry land, making profit potential more risky than with irrigated land. “You’ve got to make an average of $30 an acre to retain the average value of current rental payments earned through CRP, and without additional activity the expired acreage may not allow you to meet that goal.” Owners can retain grass cover for grazing or hay, grow crops, or lease the acreage for hunting — or, they can sell the property.

On the High Plains, farmers may have to hustle to replace annual CRP payments with other types of program payments. “If you have base acres on former CRP land, you’ll be eligible for payments, even if you leave it in grass for grazing or wildlife,” he says. If you break out land, NRCS requires you to follow conservation rules before you qualify for USDA benefits. FSA staff can advise on optional programs.

Overall, tests show low fertility levels on CRP land, according to Smith. “It is likely to cost an additional $100 an acre that first year to bring the land back into crop production,” he says. “Add to that, it may be difficult to get a crop started. Even if you spread the extra $100 over five years, it will require higher-than-average prices and yields to make it profitable.”

DeLeon points out that using CRP land for grazing or hay costs less than breaking it out for crops. However, as Smith says, “Unless program payments are much larger than normal, the landowner will not be getting as much as from the CRP.”

Here’s What to Ask

Livestock producers should ask:

  • • Is the land fenced?
  • • Is there adequate water?
  • • Must I purchase livestock?
  • • Is it covered in sustainable grass?
  • • Do I need to burn to reinvigorate grass?

Crop producers should ask:

  • • Is the land highly erosive?Do I own needed equipment?Must I make improvements to 
    minimize erosion?
  • • Is groundwater available for irrigation, and will buying equipment pay off?

All types of producers should ask:

  • • Are federal payments, or other assistance, available?
  • • Will I need to fertilize?
  • • Can I manage without hiring help?
  • • What will it cost to produce the first year?
  • • What’s the five-year profit projection?

If you want to purchase or lease land, ask:

  • • How does the price compare to similar land in the area?
  • • Is it near acreage I already farm?
  • • Does it fit into my expansion plans?
  • • Have I run the deal by my banker with a business plan showing when it will pay off?
  • • Will cash flow cover loan payments?
  • • Do I have the liquidity to attract a loan for the purchase? Current assets should be more than 1.5 times current liabilities.
  • • Do I have the leverage to justify the purchase? Leverage should be no more than 45 percent of equity.

Land Prices May Be Impacted

Even if you don’t own or lease CRP land, CRP changes may affect you. “I don’t want to be an alarmist, but as a real estate lender, we’re curious about land values,” says Kenneth Hooper of Panhandle-Plains Land Bank. “We’ll be watching them closely.”

Smith predicts that owners will sell much of the expiring CRP land. “This will likely affect the price of land of this type, but it should not affect better land,” he says, adding that the trend may not affect rent for land already in crop production.

“But it could have an important effect on grazing leases, especially for pasture with grasses and conditions similar to CRP,” Smith says. “A large amount of former CRP land will be offered for grazing on an as-is basis, and that could put heavy downward pressure on lease rates for that type of land.” Smith reports current grazing lease rates of $10 to $12 an acre, but forecasts that unimproved land could go for less, as additional CRP acres expire. He doesn’t think CRP changes will impact other parts of the state much.

Since CRP land can be leased for hunting, he doesn’t see much change in prices for wildlife leases or land purchases.

Help Is Available

If you’re looking to buy former CRP land, your Farm Credit association can help you assess profitability and provide financing. Contact your Extension agent about classes on how to make CRP decisions, or visit http://texasextension.tamu.edu. Contact your NRCS field office or visit www.tx.nrcs.usda.gov for information on the best conservation practices.

 Nancy Jorgensen

A CRP Primer

What is the CRP and how big is it?

The nation’s largest public-private conservation program, the CRP peaked in 2008 at 39 million acres across the U.S., including 4.2 million acres in Texas. This year, acreage fell to 31 million nationwide, with 10 percent of that in Texas.

What’s the goal?

The voluntary CRP began in 1986 with a goal of reducing commodities on the market, resulting in improved farm prices and profitability. Over time, the goal transitioned toward environmental benefits.

What’s the economic impact?

For fiscal year 2010, USDA distributed $1.7 billion in CRP rental payments. Some 424,000 farms received an average of $51.52 per acre, although the average dropped in places like West Texas. Nationally, the average farm earned $4,104. CRP payments will stop as contracts expire, but a farmer may make more by raising crops these days. The verdict is still out for livestock producers, but added grazing opportunities might boost profitability. The CRP continues to benefit wildlife-related businesses.

SOLD – Three Producers Explain Why They Purchased CRP Land

Byrd Plans to Graze Cattle

Jim Byrd farms in the Petersburg area, north of Lubbock. He plans to use the 640 former CRP acres he purchased for grazing.

“I run cattle in the summer 70 miles away, and I need grass for them in the winter closer to home,” he says. If stock water isn’t available, he’ll plow and grow dryland wheat.

A real estate agent told Byrd about the section of CRP property. “Quite a few people are trying to buy land around here, but owners are holding on to it,” Byrd says. Some speculate that they may benefit from leasing to a wind generator company that might locate nearby.

Byrd also owns CRP land that expired last year. “I wish they would leave the program alone,” he says. “A lot of it will be broken up and irrigated, and it will use up water. Good water is getting tough to find.”

He and his son, Chad, grow dryland wheat and irrigate corn, seed milo and cotton. They graze some of their 350 head of Beefmaster cattle on winter wheat.

The Byrds hunt deer and pheasant on their “pretty good size” spread. “At one time, there wasn’t any deer around here,” Byrd says. “Now they’re scattered around, and I guess it’s because of the CRP.”

 

Brightbill Will Grow Irrigated Crops

Darryl Brightbill of Abernathy, near Lubbock, recently bought 320 acres of former CRP property from a retired farmer. He plans to break out 280 acres and irrigate it, rotating corn and cotton. The remainder will be left for wildlife.

“I’m in the market for land as long as I can make money on it,” Brightbill says. “I got this land for a reasonable price, and good land is hard to find around here.” He farms land scattered within a 20-mile radius of home.

Panhandle-Plains Land Bank financed Brightbill’s first land purchase in 1990, and continues to finance most of his purchases. “We have a good working relationship,” he says of Kenneth Hooper, his loan officer. “I run future purchases by Kenneth, and if we don’t think it will work, I walk away.”

Groundwater had become limited on one of Brightbill’s other farms, and he wanted to use the 15-year-old pivot systems on the CRP land.

Brightbill and his wife, Pat, own 4,000 acres of cropland and rent another 2,500 acres, of which 1,200 acres are in CRP. The CRP contracts will expire in the next two years. The Brightbills plan to install pivots and grow crops on any CRP land that has sufficient groundwater. They’ll fence the remainder and graze cattle.

Brightbill likes the CRP because it keeps the land in grasses, preserving soil on the highly erosive land in his area. A former hunter, he enjoys watching the deer, turkey and pheasant that have multiplied since the CRP started.

“The CRP has really been successful here and across the U.S.,” Brightbill says. “It’s been vital for wildlife habitat and reducing erosion.”

Weinheimer Sees a Chance to Get Started

Scott Weinheimer rotates dryland wheat and milo near Groom, north of Amarillo. He broke up and planted wheat on the 320 CRP acres that he purchased.

“It’s hard to get land now, because of higher grain prices and rumors of wind power coming to the area,” explains Weinheimer.

At age 31, Weinheimer farms 10,000 acres in a 40-mile radius with his dad and three brothers, with all of them sharing chores and equipment. Each family member owns land separately, and Scott was looking to expand on his own. His CRP purchase lies adjacent to another piece he farms. The family custom-combines for other farmers, and Weinheimer bought the acreage from a customer.

While breaking up the acreage feels like starting from scratch, he has the advantage of today’s high-tech practices, including precision guidance systems and sophisticated soil analyses. He expects the first year’s yields to run lower than average and the land to be weedy the first couple of years, but he will use no-till systems hereafter, which should minimize erosion.


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