High Crop Prices and Insurance Seen Causing Catastrophe

Sustained high prices for corn, soybeans and wheat combined with record U.S. crop-insurance payouts are encouraging farmers to plow fragile lands and put ecosystems at risk, an environmental advocacy group said.

Northern Plains counties have seen the highest conversion of animal habitats and erodible lands into cropland, Environmental Working Group said today in a study of U.S. planting patterns from 2008 to 2012. About 5.3 million acres of fragile lands and 1.9 million acres of wetlands were plowed, the group said, an area slightly larger than Massachusetts.

“This is an ecological catastrophe that’s happening really fast,” said Craig Cox, director of the group’s office in Ames, Iowa. “We need to at least take steps to mitigate this.”

High corn and soybean prices and record crop-insurance indemnities from companies including ACE Ltd. (ACE) and Wells Fargo & Co. (WFC), all tied to last year’s U.S. drought, may push farmer profits this year to a record $128.2 billion, the U.S. Department of Agriculture said in February. Government subsidies to reduce producer risk have come under fire from lawmakers in this year’s debate over adopting a new five-year law authorizing federal farm programs.

The environmental group, which used satellites to track changes in land use, found North Dakota, South Dakota and Minnesota accounted for 39 percent of all wetland conversion, while more than half of fragile lands were plowed in a swath across 10 states from the Great Plains to western Corn Belt regions.

Sage Grouse

Along with improving soil and providing habitat for potentially endangered species such as the sage grouse and lesser prairie chicken, such lands also absorb farm chemicals and hold back rivers that have been rising and receding more dramatically with climate change, Cox said.

U.S. corn growers planted 97.4 million acres, the most since 1936, the USDA said in a report last month. Production of the nation’s most-valuable crop has expanded north and west. Minnesota passed Illinois and Nebraska to become the second-biggest corn-producer after Iowa last year, in part because of the drought, while North Dakota’s corn crop more than doubled in value last year to $2.9 billion.

Meanwhile, enrollment in the government’s largest environmental conservation program, which pays farmer to idle fragile land, has declined 20 percent to 29.5 million acres last year from 36.8 million in 2007 while crop insurance programs have reached a record $17.4 billion as of July 22. Crop insurance indemnities that protect farmers from losses encourage the plowing, Cox said.

Corn, Soybeans

Bob Young, chief economist for the American Farm Bureau Federation in Washington, said higher prices are the chief reason for greater production while insurance may play some role. The trend may be waning this year as higher yields and acreage have pushed down prices for corn, soybeans and wheat at least 13 percent, Young said.

Increased planting will continue as long as crop prices dictate it, Young said. In the Northern Plains, most acreage changes have come from switching from wheat, which requires less water, to more-intensive corn and soybeans, he said.

More cultivation doesn’t mean significant environmental damage, he said. “It’s not about whether a whole field comes into production, it’s about what happens to the critical part of the field,” he said.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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