Virginia's Conservation Reserve Enhancement Program (CREP) Some Economic Considerations

Farm Business Management Update, December 2000

By Jack Dunford

The Conservation Reserve Enhancement Program (CREP) is a Federal and State partnership agreement to retire environmentally sensitive land through the Conservation Reserve Program. The Virginia enhancement program consists of two components: the Chesapeake Bay CREP and the Southern Rivers CREP. When fully implemented, these projects will collectively restore up to 30,500 acres of riparian habitat and 4,500 acres of wetlands. The Chesapeake Bay CREP will target 25,000 acres within the Bay watershed, while the Southern Rivers CREP will target 10,000 acres in non-Bay drainage basins.

The Chesapeake Bay CREP has been developed to assist in protecting the Bay from the impacts of excessive nutrient and sediment loading due to agricultural runoff and to assist Virginia in meeting the overall goal of reducing controllable nutrient and sediment loading to the Bay by 40 percent. The Southern Rivers CREP project is directed at watersheds outside the Chesapeake Bay drainage basin. Additional information can be found at the following site: http://www.fsa.usda.gov/dafp/cepd/crep/Virginiacrep.htm

The Conservation Reserve Enhancement Program (CREP) offers qualified farmers in the Shenandoah Valley and other Virginia watersheds the unusual opportunity of establishing conservation practices on their farms with cost-shares up to 100 percent. After a lengthy program development period, CREP sign-up began in June 2000. Considering the relatively low/uncertain price outlook for most locally produced agricultural commodities, many farmers with qualifying lands should seriously evaluate CREP. This new program will not only offer farmers the opportunity of protecting water quality on their farms and downstream, but also the chance of improving annual returns from a portion of their land through the maximum $100 per acre annual rental payment for a 10 or 15-year contract period.

Table 1 briefly summarizes anticipated net returns per acre for four commonly produced commodities in the central Shenandoah Valley. These estimates are based on average yields, typical production costs and anticipated prices for corn, wheat, alfalfa hay, and cow-calf production. For each commodity, returns over cash (out-of-pocket) costs are estimated as well as return over total costs including ownership costs for land, equipment, etc. While these numbers may not reflect a particular situation, they indicate the relative expected profitability for these enterprises given average growing conditions (yields) and current prices. The cash costs must be recovered every year just to maintain a positive cash flow and remain in business. While the business can survive by not covering the total costs every year, all costs must be covered over time if the capital assets (land, buildings, equipment, and breeding livestock) are to be maintained and updated as needed.

Table 1: Estimated Net Returns for Four Shenandoah Valley Agricultural Enterprises

Crop	Price	Average Yield/Acre	Net Return Over Cash Costs $/Acre	Net Return Over Total Costs $
Corn	$2.25	105 Bu.	$49.56	-14.90
Wheat	$2.00	70 Bu.	-$33.59	-87.53
Alfalfa Hay	$100	3.5 Ton	$15.99	-10.38
Cow Calf	$95 Steers $88 Heifers	2.5 Ac. per cow unit	$60.00	N/A

A quick review of the figures shows that none of these enterprises surpasses the maximum $100 annual CREP rental payment. Even with the currently high feeder cattle prices, net returns are less than $75 per acre for a typical cow-calf operation.

Conceivably, if eligible land is entered into CREP and taken out of production, the remaining land could be managed more productively. Limited resources available for fertilizer, seed, weed-control, etc. can be spread over the remaining acres resulting in possibly higher production from those acres. In addition, a 10 or 15-year guaranteed income stream is from the annual CREP rental payments for the protected acres.

Contact the author at dunford@vt.edu

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