The spill could wash up farther...

Than we think.  I have been waiting for the fog of confusion to lift before commenting on the BP disaster. While not wanting to seem callous, many of us watched the Katrina catastrophe unfold with detached horror, since it really only affected folks in LA and, of course, Washington, D.C. It is easy to do so again as a largely unseen problem grows under the surface of the Gulf of Mexico.

But regardless of how pronounced the damage is to the coastline of the Gulf states, I could see a bigger problem as the ecology of an enormous amount of ocean is possibly devastated. I fully credit the efforts by both BP and the government to tackle this nightmare a mile down. [ For detailed explanations by experts about how BP is attacking the problem you can't do better than the Oil Drum]

Nonetheless, here are some ways BP could leak onto my farm:

1. Re-animating (and complicating) the "Dead Zone" controversy.

As oil continues to gush into the Gulf of Mexico, a "dead zone" is also having its annual growth spurt. It's not clear how these two complex systems will interact, but scientists are sampling the water for clues.

Fertilizer and urban runoff into the Mississippi River dump nutrients into the Gulf of Mexico. In the spring, higher flows contribute a pulse of nutrients that triggers huge blooms of algae. When the algae dies and sinks to the sea floor, it is consumed by bacteria that guzzle oxygen from the water. If oxygen levels drop too low, shrimp, fish, and other sea life must flee or die, leaving a dead zone that sometimes grows to the size of the state of New Jersey.

According to satellite images, the oil slick overlaps one of the areas where hypoxic zones typically form. The possibilities for what that means are myriad and contradictory.

Some factors might worsen the dead zone. The oil's sheen could prevent oxygen from entering the water, lowering oxygen levels in surface water at a time of year when surface and deeper waters are already stratified. Another negative mechanism: Microdroplets of oil dispersed in the water might set off a feeding frenzy of microbes able to dine on the hydrocarbons, further reducing oxygen levels.

Alternately, the oil could lessen the severity of the dead zone. Oil reflects light, which is needed by the photosynthetic phytoplankton. And toxins in the oil could also diminish the phytoplankton blooms. Both factors could potentially mean fewer dead phytoplankton reaching the bottom, leading eventually to less oxygen depletion. [More]

I'm not trying to be pessimistic, but hoping for two bad things to cancel each other out seems far-fetched to me. What will be more likely is the liability mining is already underway, as everyone from Gulf tourist businesses to environmental groups flood the courts with actions to recover damages.

While they do so they will be funding, along with the government, plenty of new research into the health of the Gulf, and I for one do not think the reports will be happy talk.  In the effort to begin to recover from this disaster, it will be very easy to attach new limits on the runoff issues associated with the previous Dead Zone.

For Midwestern producers this means the possibility of new regulations on fertilizer amounts and  applications.  Erosion will come under even more scrutiny.  In short, the complaints we have stymied to a vague standoff will suddenly be attached to a juggernaut, IMHO.

So first possible consequence: stronger fertilizer regulation in the Mississippi watershed.

     2.  Carbon taxes. 

There is growing awareness that our fiscal problems cannot be solved by the Tax Cut Fairy, and will require new government revenue.  If you don't believe this, send me your list of budget cuts to attack the problem.  Carbon taxes have been my choice, but have fallen into disfavor even though they represent progress on two fronts - energy and debt.

The BP spill has breathed new life into examining the problems of basing so much of our economy on energy sources which do not fully price in the externalities of their environmental impact.  Carbon taxes are a suitable way to do this. 

As legislators run out of ways to avoid addressing the budget deficit, taxing a now VERY problematic energy source to at least recover some of the unpaid costs of their use (and this debacle) could gain momentum.  This would be good for ethanol curiously, but bad for farmers who imagined their political clout would gain them checks for questionable carbon-sequestering benefits.

Because much of the ag carbon footprint is from fertilizer, another tourniquet could be applied to our voracious intake of NPK. 

Second impact:  carbon taxes raising costs considerably.

   3.  NOLA shipping.

The slick has forced the shutdown of the gulf's rich fishing grounds and could also spread to the busy shipping lanes at the mouth of the Mississippi River, tying up the cargo vessels that move millions of tons of fruit, rubber, grain, steel and other commodities and raw materials in and out of the nation's interior.
Though a total shutdown of the shipping lanes is unlikely, there could be long delays if vessels are forced to wait to have their oil-coated hulls power-washed to avoid contaminating the Mississippi.
Some cargo ships might choose to unload somewhere else in the U.S. That could drive up costs.
"Let's say it gets real bad. It gets blocked off and they don't let anything in. They lose time, and they are very concerned about that," said river pilot Michael Lorino. "It's going to be very costly if they have to unload that cargo in another port and ship it back here because it was destined for here."
When a tanker and a tugboat collided near New Orleans two years ago, oil cascaded down the river and some 200 ships stacked up, unable to move for several days while the Coast Guard had the vessels scrubbed. Millions of dollars were lost. [More]

 Third impact: basis turmoil as my markets shift due to transportation cost volatility.

   4.   Big government.

As Republicans smell blood/oil  in the water, they could inadvertently, or very cynically, about-face on the role of government.  Blaming Pres. Obama for not doing enough is hardly a Tea-Party call for smaller, less intrusive government.  Consider one GOP critic of government who has radically changed his tune.

Ben Brooks, a lawyer and Republican state senator from coastal Alabama, says he's no fan of big government but he expects an aggressive federal response as a gunky oil spill threatens the Gulf of Mexico.
"There's nothing inherently contradictory in saying we believe in smaller government and demanding that the government protect public safety," Brooks said.
All along the Gulf Coast, where the tea party thrives and "socialism" is a common description for any government program, conservatives who usually denounce federal activism suddenly are clamoring for it.
Take Louisiana Gov. Bobby Jindal, a Republican elected in 2007 when Democrat Kathleen Blanco opted not to seek re-election after she was widely panned for a bumbling response to Hurricane Katrina two years earlier.
Since April 20, when a gulf rig exploded and blew out an underwater oil well about 50 miles south of Louisiana, Jindal has been a constant presence in the fishing communities and barrier islands along his state's fragile coastline. He's been out on boats and up in Black Hawk helicopters, doors open, to survey the spreading, rust-colored swath of crude.
Gov. Bobby Jindal looks at oil that got past booms on May 21 as he tours a land bridge built by the Louisiana National Guard to hold back oil in Grand Isle.Jindal, a possible 2012 presidential candidate, has demanded a stronger response from the Obama administration, accusing the U.S. Army Corps of Engineers of dragging its feet in approving Louisiana's plans for protective berms -- a plan that took three weeks to approve.
"This oil threatens not only our coast and our wetlands, this oil fundamentally threatens our way of life in southeastern Louisiana," Jindal said last week.
Jindal is a fiscal conservative who made headlines last year by rejecting some federal stimulus money, then distributing other stimulus funds by handing out oversized cardboard checks to local officials.
Louisiana State University political science professor Kirby Goidel said Jindal's call for larger federal involvement in the oil spill management contradicts the governor's usual persona.
"He's governor largely because of Katrina," Goidel said. "He knows that it's important to get out on top of it and be clear if the federal government is not doing what it's supposed to do. It's important for people to know that." [More]

My rule of thumb is modern "conservatives" are staunch opponents of government action that doesn't benefit them. I expect to see more such criticism of the "inadequate" federal response regardless of the budget or expansion of federal responsibility.


Fourth Impact: expansion of the scope of federal responsibility for private mistakes (similar to Wall Street)

This is not, of course, an exhaustive list of possible outcomes, but it gives me some targets to watch.  If forced to bottom line this for my farm, it would be less optimistic medium term for grain prices than I have been.  And more profoundly determined to lower our costs and energy use than ever.

Not thunderously brilliant, I know.  But surprisingly defensive for me.