farmgate: What Would You Pay For A Trustworthy, Long Term Weather Forecast?
You have just watched the latest weather forecast on TV presented by the blow-dry weather reader, and you say to yourself, “I wish I could depend on what he says.” You have learned where some of the weather maps are located on the Internet, and you may even have a weather service on your cell phone. But you lack long term weather forecasts that will allow you to adjust your cropping pattern for different crops, or even just select more drought-resistant hybrids. How important is that to you, and what would you pay for having that knowledge? No sales pitch is being made here, so……
The western Cornbelt was a magnet for hip waders this year. The eastern Cornbelt was parched during most of the growing season. There is an increasing prospect for a La Nina arriving, but remind me, does that mean wet or dry? It is part of the dynamic cycle of surface water temperatures in the Pacific along the Equator, and the cycle can either mean wet or dry seasons for the Cornbelt, impacting crop production and commodity prices. The grain traders may already be spending a lot of money on long range forecasts to improve their profits, but what about the producer where the grain meets the ground?
Ohio State economists Brent Sohngen, Ted Napier, and Mark Tucker interviewed 936 farmers about the use of weather information, their desire for improved information, and how much they would pay for it. The survey was taken in 2001, and the study was published in 2003, but the findings are important because of the current weather dynamics and the extraordinary investment farmers are making in land and inputs for the 2008 crop.
The researchers say one El Nino cycle could have a financial impact on the US that might range from $1.5 to $6.5 billion, and the value of a perfect forecast for an El Nino cycle could be as large as $323 million just for agriculture. Adoption of practices to prepare for such a weather cycle depends upon farmer perceptions of the accuracy of the forecast. While farmers have marketing tools such as forward contracts, and production tools such as crop insurance, the Ohio State economists say weather information could substitute for such risk management devices, or help them make better decisions.
What is a long term forecast in your mind? To the researchers it is 6 to 9 months in advance of important production decisions, such as seed selection and crop insurance decisions. Some of you may already have a subscription weather service, so the Ohio State researchers considered either an initial subscription, or upgrading to a more expensive service. And the decision to adopt an improved forecast and pay for it is all based on an underlying profit motive.
The survey found that weather ranked behind market prices and input costs as the most important risk factor they face. And they were asked “If you could access weather information in which you could place 75 – 100 percent confidence of predicting monthly temperature and precipitation for your farm 6 – 9 months in advance, would you use such weather information to make crop production decisions?” They found that 47% would use such reliable forecasts if they were available:
1) Income does not have a significant effect on the probability of adopting improved weather forecasts.
2) More educated farmers are more likely to adopt the information, while older farmers are less likely to adopt it.
3) Farmers who have adopted long-term weather information for a larger number of farm decisions today are more likely to adopt the improved weather data we offer them.
4) Greater losses from drought likewise increase the probability of adopting the improved weather information, whereas the use of insurance and genetically modified seeds to reduce susceptibility to droughts does not seem to influence the adoption decision.
5) Average yield and variance in the yields for the county where the farmer is located do not have significant effects on the adoption decision. (Survey was taken in Ohio.)
Of the 219 farmers who would adopt the improved weather forecasts for 6-9 months out, the researchers asked how much they would pay for that service. The willingness to pay for improved weather information averaged about $105 per year, but the most frequently mentioned fee that would be acceptable was about $75. (Keep in mind that these are 2001 dollars, and today’s averages would be slightly more by inflation, and possibly larger still because of higher production costs.)
Summary:
About half of Cornbelt farmers would purchase improved weather forecasts for which they could be 75-100% sure of the weather 6 to 9 months away, all in an effort to make better production decisions. The results of a survey taken 6 years ago found that the average farmer who would subscribe would not pay much more than $75 for the information, even though it might accurately predict an El Nino that could cause up to $6.5 billion in damages to the US.
Posted by Stu Ellis on December 13, 2007 12:28 AM to farmgate