Washington Insider -- Thursday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

CRS Reports WTO's Doha Round Would Hit US Farm Subsidy Programs

Trade liberalization proposals currently under discussion at the World Trade Organization's Doha Round would significantly lower certain types of U.S. domestic farm supports and eliminate export subsidies, according to a new report by the Congressional Research Service. At the same time, the report indicates that U.S. agricultural products would gain wider access to foreign markets under a Doha agreement.

The Doha negotiations have attempted to secure tighter spending limits on trade-distorting domestic supports and the elimination of export subsidies while also seeking to expand market access and to limit the use of import safeguards and other trade barriers.

According to WTO notifications data cited by CRS, the United States, European Union and Japan collectively accounted for 85% of global domestic support outlays between 1995 and 2010. The question at some point is whether U.S., EU and Japanese farmers would be willing to trade the sure thing of government support (i.e. the risk management safety net) for the more uncertain prospect of greatly increased exports. Without that trade-off, reaching the lofty goals of the Doha Round may remain out of reach.

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Railroads Working with Shippers to Fight Proposed New Speed Limits

U.S. railroads are calling on their customers to help them fight a government safety proposal to lower the speed limit for trains hauling crude oil. Media reports indicate that more than a dozen companies and business groups, urged by railroads, are warning government regulators that cutting oil train speeds to 40 miles per hour from 50 would have a cascading effect, delaying other trains sharing the tracks carrying cargo such as furniture, grain and electronics.

Regulators in both the United States and Canada are considering rules to prevent accidents involving trains hauling crude oil, such as one that killed 47 people in Quebec last year. Rail shipments of crude oil reportedly are up 4,000 percent in the last six years, an increase that safety advocates say poses a greater risk to communities near the tracks.

Another concern is that lower speed limits for oil trains would result in higher shipping costs for oil companies, raising the possibility that they would shift at least a portion of their cargoes to tanker trucks. Such a shift would not only increase truck traffic along a number of interstate highways, but also could raise similar safety concerns for a whole new set of towns and cities along the new oil routes.

The U.S. transportation system has quite a bit of catching up to do if the country is to make the best use of its expanded oil and gas extraction. Congress can be counted on to look into the need for better transportation logistics when it gets underway next January. Whether members can be convinced to provide the funds necessary to accomplish needed repairs and improvements is another question.

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Washington Insider: Worries About Grain Storage

Along with concerns about the effects of the expected large corn and soybean crops on farm prices and incomes has come another concern: where will the sector put all the grain, especially in the immediate harvest period before the bulk of the crops move to market?

USDA's Grain Transportation Report recently noted that the large harvest could mean stocks in excess of "permanent grain storage capacity" and could mean storage shortages in as many as eight states: South Dakota, Indiana, Missouri, Illinois, Nebraska, Kentucky, Michigan and Ohio. These states are ranked from greatest anticipated storage shortage to least.

Part of the problem, USDA says is that farmers are holding on to old-crop grain, with as much as a 50% increase of the old crop grain still in storage last Sept. 1.

USDA also expects that some storage needs likely will be met through temporary storage and that USDA is considering allowing special rules for this unusually large crop. This could be important for grain that is under government loan.

USDA continues to warn of rail service delays as the railroads face "brisk competition for limited capacity" from oil, coal, intermodal, and automobiles. This could add to the cost of moving this harvest which is expected to reach a record 18.8 billion bushels of the major crops, according to USDA's Agricultural Marketing Service.

In the meantime, University of Illinois agricultural economist Darrel Good says that the total crop output this fall likely will occupy 95% of total U.S. grain storage capacity, although not all of the harvest will need to be stored.

In addition, it appears that many producers are taking their time bringing the crop in, especially where there a chance that it will dry down some more during good fall weather. Because crop consumption has been high this fall, some industry experts are suggesting that storage issues may be less severe than feared.

Prof. Good says the data now suggest that consumption of feed grains, wheat and soybeans during the Sept. 1 through Oct. 16 period reached about 3.2 billion bushels suggesting that perhaps 16 percent of the total fall crop has been consumed already, even before a good bit of the total has been brought in. "That magnitude of consumption has substantially reduced the requirement for crop storage capacity, resulting in a modest strengthening of the corn and soybean basis in many areas," Good told the press.

Lest observers become too sanguine, Good hastens to warn that regional issues persist even though the pace of harvest seems to be picking up reflecting favorable weather conditions over much of the production area. The bad news is that the rapid harvest "would be expected to keep basis levels for corn and soybeans seasonally weak," Good says, but he thinks a typical post-harvest recovery in basis levels is expected.

So, the good news is that the system is quietly moving very large amounts of the huge harvest into consumption — but that it has both huge amounts to deal with and large and growing competition for limited capacity. Not every year will bring such a bumper crop, of course, but the huge expansion in petroleum transportation needs suggests rebuilding and expanding transportation infrastructure needs deserves higher priority than ever, Washington Insider believes.

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(GH/CZ)

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