With commodity prices at unprecedented highs and a reauthorized renewable energy bill driving demand for biofuels for years to come, there are plenty of smiles across rural America. But the other side of the coin has the cost of inputs—especially fuel and fertilizer—also climbing to unprecedented heights. Will a focus on price-per-bushel threaten hard-won gains in conservation? Or will input costs make conservation tillage as vital as ever to protecting profits?

One thing is clear: the calculus of conservation is being refigured. This year, CTIC Partners will follow the money in a series called The Economics of Conservation.

With all the euphoria surrounding $5 corn and $12 soybeans, it’s little surprise that corn acreage is spreading toward the fencerows and land prices are spiraling to record highs.

For example, the price of an average acre of Iowa farmland climbed $700 last year to an all-time high of $3,908, more than double the average acre sold in Iowa in 2000. Cash rents in the Hawkeye State for land that can produce in the range of 165 bushels of corn per acre is estimated to average around $225 per acre. USDA’s Economic Research Service (USDA-ERS) predicts a nationwide average farmland price over $2,000 in 2008, a huge jump over 2006 baseline projections.

Few people harbor the illusion that those prime, high-dollar acres are headed into set-aside programs or conservation easements. But many are concerned about the more sensitive land—the highly erodible ground, the riparian buffers, and the soil-saving pastures and fields with expiring Conservation Reserve Program (CRP) contracts—that may be opened up to feed the nation’s hunger for corn (and, to a lesser but growing extent, for soybeans and wheat). And conservationists are hoping that gains in corn acres, which in the past several years have been about one-third as likely as soybean acres to be no-tilled in the Midwest, don’t also translate to losses in conservation-tilled acres as growers try ground preparation tactics, fertilizer rates, and pest control practices that they believe could help them eke out a few extra bushels per acre.

Climbing input costs

Norm Widman, national agronomist for the USDA Natural Resources Conservation Service (NRCS) in Washington, D.C. points out that even farmers reaping high prices at the elevator can benefit from saving money through conservation practices—especially in light of high diesel costs. Fuel prices have doubled since 2002, and retail diesel prices have topped $4 per gallon in some areas.

“Two years ago, when corn and beans were still down at typical prices and the price of diesel went up, a lot of people were seriously looking at taking some tillage passes out,” he says. “Now the price of the crop has gone up to where it may mask the cost of fuel. But if people want to watch their bottom line, fuel is a major part of the cost for grain and livestock farmers. It’s still a big cost.”

Near Carroll, Ohio, grower David Brandt says he and his wife Kendra see the impact of no-till on their 900-acre farm’s fuel bill every day. “It costs us two gallons per acre from planting to harvest,” says Brandt, who has no-tilled since 1971 and currently chairs the Ohio No-Till Council. “When we go out and talk about no-till, I try to use that as an example against seven, eight or 10 gallons per acre for conservation tillage or conventional tillage. When you’re looking at $3 per gallon, that’s a $30-per-acre cost.”

Brandt points out that input costs—from rent to fuel to fertilizer to land taxes—are quickly climbing to fill the void that last year’s runaway market left between production costs and grain prices. Perhaps the biggest jump is in fertilizer costs. According to the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, anhydrous ammonia prices are up slightly over last year, but dry and liquid nitrogen prices are up 30 percent, phosphorous prices have jumped 40 percent, and potash is up 25 percent. Though chemical prices are predicted to be stable, seed and equipment are climbing, too, according to FAPRI.

“I don’t want to sound negative,” says Brandt, “but I don’t know whether the farmer today is going to have any more money left than when corn was $2. I don’t think the money’s going to be made in ’08 that could have been made in ’07.” The bottom line: conservation tillage will be just as important as ever for controlling costs, as well as keeping harvest running smoothly on firm, healthy fields.

New chance to start

With profits from 2007 in the bank and a changing outlook on the economics of farming, growers could use the current boom to fuel purchases of new, conservation-oriented equipment, says Douglas Lawrence, director of NRCS’s Resource Economics and Social Science Division in Washington, D.C.

“If farmers think diesel prices are going to stay high, and do have some cash, and their equipment is aging, they could replace an older planter with a no-till planter,” Lawrence says. “This could be an interesting opportunity for people to buy high-tech farming tools, an interesting opportunity for precision agriculture.” Precision guidance systems and variable-rate application equipment can significantly reduce the per-acre consumption of fuel and other inputs, he notes.

Sales of precision farming tools are indeed booming, says Barry Nelson, manager, public relations, for Deere and Co. in Lenexa, Kan. Nelson says Deere expects to see a 10 to 15 percent increase in equipment sales in 2008 over 2007, but the company sees the increases across its product lines, not with any particular emphasis on conservation tools.

Can CRP compete?

As every acre becomes increasingly valuable, Brandt notes that conservation practices that don’t tie up as much land are gaining popularity. He points to water and sediment control basins, or WASCOBs. “There seems to be a lot of interest here in Ohio in WASCOBs,” he says. “You can farm all but where the dam’s at—you don’t lose the land like you would with grassed terraces.”

In the face of mushrooming land values, the long drive to enroll more than 39 million acres of sensitive farmland in CRP contracts may get longer. At the end of FY 2007, USDA Farm Services Agency (FSA) had about 36.8 million acres enrolled in the program at an average rental rate of $50 per acre. The agency had a good response to its 2006 offer to re-enroll or extend contracts on about 28 million acres expiring between 2007 and 2010. Eighty-four percent of those acres were enrolled or extended, according to Alex Barbarika of FSA’s Economic Policy and Analysis staff in Washington, D.C. But it’s very likely that the percentage would be lower if the offer were held today, with land prices considerably higher.

At least in the short term, CRP probably won’t be able to keep up with the spike in cash rental rates, Barbarika says. “[The CRP rental rate is] supposed to reflect an average of the past three years’ market rental rates,” he explains. “In a rising market, CRP rental rates will lag behind it—in some cases, considerably. But that’s where CREP [the Conservation Reserve Enhancement Program] comes in. They have extra funds, and some continuous sign-up practices receive extra payments.”

In fact, continuous CRP’s rate of $98 per acre was about double that of general sign-up in FY ‘07. CREP payments, targeted at projects on especially sensitive acres, averaged $122 per acre. Signing bonuses and practice incentives added still more on some farms.

In all, Barbarika acknowledges that some farmers may hold off on committing land to CRP when they could farm it—at least until the market settles down. But he adds, “with all of this intensive cropping, it’s going to be more important to buffer the land in production with CRP buffers and filter strips—the environmental benefits may be all the more critical with the increase in acres planted.”

NRCS’s Widman agrees. “Regardless of what they do, growers could probably make a lot of money this year, and I hope they do,” he says. “But, it is important for producers to keep conservation in mind, including highly erodible land and wetland compliance. NRCS is available to help them excel in production and also excel in conservation.”