Watch the Weather, Manage the Risk

Posted August 28, 2015

The weather is the one force no farmer can control. But, Dr. Elwynn Taylor, professor in ag meteorology at Iowa State University, told attendees at the 2015 Risk & Profit Conference that farmers can do more than just watch the short-term forecast.

“The weather is the main uncontrollable factor,” he said. “If we cannot manage the weather, we can manage the risk.”

To do so, Dr. Taylor emphasized the importance of watching historical weather trends as well as USDA forecasts.

“Use of government estimates and forecasts combined with careful analysis of observed crop conditions and weather impacts provide profitable alternative positions that can enhance the financial security of an individual’s farming program,” he wrote in his program description.

This  map can be helpful in considering the potential impact of El Nino on the global wheat market. Look at the wheat producing areas: U.S., Australia, Russia/Black Sea, India.
For example, one particular weather pattern of importance this year is the current El Niño. For Kansas, Dr. Taylor said a more than 50 percent chance of an El Niño typically results in above trendline yields thanks to increased precipitation.

“El Niño is our friend,” Dr. Taylor said.

But, he cautioned that for effective risk management, farmers must watch conditions not only for their own farms, but also for their competitors around the world. He further explained that while an El Niño typically results in drier than normal conditions for farmers in Australia, the patter benefits farmers in Argentina, who compete with Kansas farmers in markets in Central and South America.

Overall, Dr. Taylor cautioned producers to take risk management seriously as historical trends indicate another 20 years of climate risk.

“Manage risk, it needs managing. Because the weather is going to do what it does,” he said. “It is your livelihood, and now your livelihood is called risk management.”

Find a full version of Taylor’s presentation at http://agmanager.info/events/risk_profit/2015/Papers/GS2_Taylor_Weather_2.pdf.

This year marked the 20th Risk & Profit Conference, organized by the K-State Department of Agricultural Economics. The conference is intended to update key agricultural decision makers on contemporary agricultural issues. For more resources from the conference, visit http://agmanager.info/events/risk_profit/2015/Papers.asp.

By Julia Debes