Increasing flexibility and eliminating set-aside acres have increased the potential supply of commodities. But this potential for greater supplies and the adverse impact on commodity prices have been masked so far. Short supplies going into 1996 and poor growing conditions during the 1996 season raised commodity prices to near-record highs. Long term, one should expect larger supplies and reduced commodity prices compared to prior farm program levels. Increased financial pressure on less efficient producers will likely speed the process of consolidating farms into larger, more efficient units.
Considerable uncertainty remains over the potential impacts on farm land values.
Clearly, the fixed program payments under the production flexibility contracts have been bid into current land values. However, if supplies increase and prices decline, land values could decrease. The 1996 Farm Bill contains many conservation measures. The legislation caps CRP enrollment at 36.4 million acres. Expired or terminated contracts may be replaced with new enrollments.