The tactical value of ENSO forecast information to dual use winter wheat production in the US Southern High Plains

Authors: Mauget, Steven; Zhang, Xunchang; KO, JONGHAN - TAES

Submitted to: Journal of Applied Meteorology and Climatology
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: 1/29/2009
Publication Date: 10/1/2009
Citation: Mauget, S.A., Zhang, X.J., Ko, J. 2009. The tactical value of ENSO forecast information to dual-purpose winter wheat production in the US Southern High Plains. Journal of Applied Meteorology and Climatology. 48(10):2100-2117.

Interpretive Summary: The El Niño–Southern Oscillation (ENSO) climate mechanism makes it possible to predict winter season precipitation over the U.S. Southern High Plains (SHP) based on the previous summer’s Pacific Ocean conditions. Such forecasts might be useful to those SHP producers that combine winter wheat production with cattle grazing, which is sometimes called ‘dual-use’ winter wheat production. The goal here was to use computer simulations to answer two questions that might be asked about these forecasts: 1) What are the most profitable management strategies agricultural producers should use in responding to forecasts, and, 2) What are the magnitudes of forecast-related profit effects? These model simulations reproduced a basic production trade-off that also exists in real dual-use farming systems. Although grazing cattle on winter wheat in the early stages of growth produces weight gain, it can also lead to decreases in grain yield. Thus while cattle grazing on winter wheat are producing profits, they are also, in effect, eating profits related to grain sales. As a result, under the three market conditions considered here the best management strategies for specific forecast conditions changed as the relative value of grain and cattle live weight gain (LWG) changed. The first scenario assumed $3.50 bu-1 wheat prices and that the wheat producer leased pasturage to the cattle owner at a typical rental rate ($0.75 kg-1 of LWG). Under those circumstances grain-only production with no grazing was found to be the most profitable under almost all ENSO forecast conditions considered here. In the second scenario LWG value to the wheat producer (LWGV) was increased to a level consistent with the producer purchasing, grazing and selling cattle ($2.20 kg-1), and dual-use management was identified as the best strategy under most forecast conditions. In the last scenario wheat prices were increased from $3.50 bu-1 to a value typical of the Fall 2007 global wheat shortage ($7.00 bu-1), and LWGV was held at $2.20 kg-1. In that case the best management practice under many forecast conditions reverted to grain-only production. Comparing the overall value of the simple prediction methods tested here suggests that forecast information’s value increases as the value of agricultural production increases, but also shows that best overall management practices for certain forecast conditions might provide less annual profit than best practices based on no forecast information during some years. It is suggested that methods similar to that used here might be used as the basis of PC programs that producers could use to identify best planting strategies, but that these tools would require simulation models that are closely calibrated to the behavior of their real counterparts.

Technical Abstract: The goal here was to estimate the tactical value of El Niño–Southern oscillation (ENSO) forecast information to dual-use winter wheat management over the U.S. Southern High Plains via a simulation approach. These model simulations considered three market scenarios, and the most profitable management strategies for specific forecast conditions were found to change as the relative value of grain and cattle live weight gain (LWG) changed. This sensitivity to market conditions was rooted in a basic production trade-off in the model, in that simulated LWG increases were offset by decreases in yield. In the first scenario $3.50 bu-1 wheat prices were assumed and the wheat producer leased pasturage to the cattle owner at a typical rental rate ($0.75 kg-1 of LWG). Under those circumstances dual purpose wheat production was not found to be optimally profitable to the wheat producer under almost all ENSO forecast conditions considered here. In the second scenario the return on LWG to the wheat producer (LWGV) was increased to a value consistent with the producer purchasing, grazing and selling cattle ($2.20 kg-1), and dual purpose management was found to be the best strategy under most forecast conditions. In the last scenario wheat prices were increased from $3.50 bu-1 to a value typical of the Fall 2007 global wheat shortage ($7.00 bu-1), and LWGV was held at $2.20 kg-1. In that case the best management practice under many forecast conditions reverted to grain-only production. Comparing the overall value of the simple prediction methods tested here suggests that forecast information’s value increases as the value of agricultural production increases, but also shows that management practices adapted to forecast conditions can provide less annual profit than best practices based on no forecast information. It is proposed that methods similar to that used here might be used as the basis of risk management tools, but that these tools would require simulation models that are closely calibrated to the behavior of their real counterparts.