The Value of Climate Information When Farm Programs Matter

Abstract:

Predictability of seasonal climate variations associated with ENSO suggests 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, prices, and risk aversion levels. 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 crop selection and planting dates, 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 La Niña or El Niño ENSO phases are forecast. Highly risk averse farmers could benefit from the forecast by taking advantage of potential favorable conditions (offensive responses). The inclusion of Commodity Loan Programs (CLP) and Crop Insurance Programs (CIP) decreased the overall value of the forecast information even to negative levels. However, more risk averse farmers could still benefit moderately from El Niño and marginally from La Niña forecasts when they participate in CLP and CIP.