The value of precipitation forecast information in winter wheat production

Abstract

Many aspects of agricultural production can be adversely affected by weather. Weather forecast services tailored for the specific needs of the farming community are available throughout North America. Estimating the value of these services to farmers is increasingly important as weather service budgets are under increasing scrutiny. A framework to characterize the value of precipitation forecast information to winter wheat producers in the province of Ontario, Canada, is developed. A mean–variance model is used as the basis for this framework. This theoretical framework is applied to precipitation forecast data from the Windsor and the London weather offices for the crop years of 1994 and 1995. Four forecast methods are compared. A naive forecast based on precipitation over the last four days is used as the baseline forecast. The second forecast considered is the daily Environment Canada farm forecast. A third forecast was constructed by arbitrarily improving the accuracy of the Environment Canada forecast by 50%. The fourth forecast considered assumed perfect foresight on the part of producers, in the sense of knowing the actual pattern of precipitation over the next 4 days. Precipitation damage relationships during harvest are developed based on available agronomic data. The value of weather forecast information was found to vary considerably between 1994 and 1995. The level of risk aversion of the producer was also found to be an important determinant of the value of weather forecast information, although some of our results indicate that the value of weather forecast information may be inversely related to the degree of risk aversion. Estimates of the value of precipitation forecast information averaged $100.00 (CDN)/ha per year.