Climate Information to Reduce Farm Risk

Abstract

Predictability of seasonal climate variations associated with ENSO suggest a potential to reduce farm risk by tailoring agricultural management strategies to mitigate the impacts of adverse conditions or to take advantage of favorable conditions. Federal farm policies may enhance or limit the usefulness of this climate information. A representative peanut-cotton-corn non-irrigated north Florida farm was used to estimate the value of the ENSO-based climate information and examine impacts of farm programs under uncertain conditions of climate and prices. Yields from crop model simulations and historical series of prices were used to generate stochastic distributions that were fed into a whole farm model, first, to optimize management practices, and then, to simulate uncertain outcomes under risk aversion, with and without the use of climate information, and with and without the inclusion of farm programs. Results suggest that seasonal climate forecasts have higher value for more risk averse farmers when forecast La Nina or El Nino ENSO phases for offensive responses (taking advantage of favorable conditions). The inclusion of Commodity Loan Programs and Crop Insurance Programs decreased the overall value of the forecast information to even negative levels. However, more risk averse farmers could still benefit moderately of El Nino and marginally of La Nina forecasts when they participate of these farm programs.