April 25, 2016
Waiting for Fewer Crop Acres
By David Widmar
by David A. Widmar
The biggest takeaway from the USDA’s March projections of 2016 crop acres was, at a high-level, “too many” acres. While this was especially true for corn, it applies more broadly as well. Given the slower growth in demand for agricultural commodities and several years of above-trend yields, the U.S. and global commodity markets are signaling that inventories are abundant. In fact, the market has pivoted from “too few” acres (especially after the drought of 2012) to “too many” acres. This week we take a big-picture look at U.S. crop acres.
Principal Crop Acres
One measure of total acres is the USDA’s principal crop (planted acres) data. While this data is convenient, it is not perfect as the variations from year to year can be great. One intuitive source of this variation is acres of prevented planting (which was important in 2015), but as our colleagues from the University of Illinois point out (here), even accounting for prevented planting and other obvious variables (double crop and CRP), the year-to-year variations are still present and puzzling. The purpose here is not a focus on the actual levels for this year, but rather take a look at the broader trends.
Principal crop acre data from 1991 to 2015 are shown in Figure 1. Earlier in the data set (1991 to 1995), principal crops averaged 323 million acres. In 1996 this figure increased to well over 330 million with the passing of the 1996 Farm Bill, known as Freedom to Farm, which eliminated Acreage Reduction Programs (more on that in a bit).
This increase in planted principal crop acres took nearly a decade to unwind. By 2006 acres had fallen by 18 million from their 1996 peak. Where did these acres go? It’s hard to say exactly, but some potential shifts include to CRP; pasture or grazing; and fruit, nut, and vegetable production. From 1996 to 2006 principle crop acres slowly settled lower as producers reallocated their crop production and adjusted their land usage.
In 2007 the downward trend reversed as commodity prices inched higher and lured back acres of principal crops. Since 2006 there has been great year-to-year variability (noise) in the data, but looking at the broad trend of increased principal crop acres is observed. In 2014, principal crop acres were 326 million acres, or the 8th largest in 25 years. Again, conceding the data aren’t perfect, reported principal crop acres increased by 10.8 million acres from 2006 to 2014.
Looking back further, principal crop acres were also an important element of the boom/bust period of the 1970s and 1980s. In figure 2, principal crop acres planted are shown from 1965 to 1990 (Note: the USDA uses different definitions of “principal crops” for calculation between Figure 1 and Figure 2 data. It is not appropriate to make direct comparisons of data points across these figures.)
During the boom-era of the 1970s, planting of principal crops increased from 300 million in the early 1970s to peak at 363 million in 1981, a 21% increase. During the farm financial crisis, which also peaked around 1981, the government intervened and funded programs to reduce principal crop acres planted. By 1987, principal crop acres fell to pre-boom levels (305 million acres).
In short, the expansion and contraction of principal crop acres during the 1970s and 1980s were an important factor of the crisis and recovery.
As mentioned earlier, fewer acres of production as a result of government intervention during the 1980s was an important element of Farm Financial Crisis recovery. The first wave of programs included the acreage reduction program, shown in blue in figure 3. The acres involved in the acreage reduction program varied, but typically accounted for more than 30 million acres (which is substantial relative to the 300-360 million acres of principal crop acres planted).
A second component of the government intervention included the Conservation Reserve Program (CRP), shown in red. This program rapidly swelled to more than 30 million acres from 1986 to 1990, and the program has been in existence now for more than 30 years. As we noted in an earlier post, acres enrolled in this program have recently contracted. In 2007 the program peaked with 36.8 million acres; today the program stands at 24.2 million acres – a 12.6 million acre reduction in just eight years.
Wrapping it up
As economists, we often say the best cure for high prices is high prices. During a high price period, acres are pulled into production. This was observed in recent years (figure 1) and during the strong agricultural era in the 1970s (figure 2).
On the other hand, the best cure for low prices is lower prices. Low prices get acres sidelined and moved out of production. This an important part of the recovery during the farm financial crisis of the 1980s (figure 2) in which the government played an integral role (figure 3). Furthermore, we observed acres being moved out of principal crop production from 1996 to 2006 (figure 1).
Today, the CRP program remains in place but has recently been reducing program acres (figure 3). Currently, acres in the program are at their lowest points since 1989 when the program was starting up.
Some comfort can be taken in that expansion of principal crop acres in recent years was much smaller than during the 1970s (10.8 million compared to 63 million acres). We expect acres of principal crop acres to fall in the long-run, it’s just getting there that can be tricky and painful. One of the most significant unknowns will be the role of the government, specifically concerning the trend of fewer acres of CRP.
In the meantime, producers will be waiting for fewer crop acres.
Photo: Flikr/United Soybean Board