Climate Risk Management: Making decisions and dealing with imperfect information

by CottonInfo climate, energy and carbon technical specialist Jon Welsh.

Evaluating and interpreting layers of climate information, weather acronyms and colour charts at key decision making times can be a daunting prospect. Some growers have their favourite weather sites on which they  base their decisions, while others prefer to watch for a flock of black cockatoos on the wing or a cactus flowering to see if rain is coming. Others only believe forecast rain when the gutters are running water. Those that have been burnt by a forecast in the planning stage have an inherent distrust in weather predictive systems.

Whatever the view as a user, relying on modern forecasting tools in an environment with imperfect information is common in other sectors; particularly commodity markets, foreign exchange and share markets. Ultimately, we all strive for more accurate business planning for better economic and environmental outcomes. These skills have implications for growers managing seasonal risk, optimising farm fertiliser inputs and reducing on-farm emissions. Fundamental principles on risk management can help navigate a way through the maze.

Here are six suggestions on dealing with climate information and managing farm inputs in your business:

  1. Survey information sources widely
    Relying on one particular model or information source is risky. Computer guidance can be very good at certain times of the year but they have strengths or weaknesses with climatic influences that are not always known to the user. When it comes to seasonal (3 month) forecasts and strategic planning it is prudent to look at the output from other leading climate research agencies. The Australian Bureau of Meteorology releases monthly seasonal temperature and rainfall forecasts. The results of this forecast should be considered in the context of other models such as government meteorological agencies in the US, Europe and Asia. The BOM is only one of around twelve operational seasonal General Circulation Models (GCMs). Identifying consensus from these models can give extra confidence in decision making. Variable results can also signal a more conservative approach is required.
     
  2. Using seasonal temperature forecasts
    As a farmer, it’s human nature to go online and seek out rainfall forecasts as naturally, a decent rain event drives production and operational decisions. As managers of moisture we also need to consider another side of the ledger on our moisture balance sheet – evaporation from high temperatures. Too often concentrating on rainfall forecasts can be misleading; from a purely scientific perspective, modelling and simulating rainfall convective processes in various layers of the atmosphere is very challenging. The accuracy of rainfall seasonal predictions also varies throughout each season.

    Temperature on the other hand can be a useful guide to how the air pressure patterns are behaving. We all know that a high pressure cell stabilised over south-eastern Australia can create day-after-day of clear, fine and warm weather. Air pressure patterns are the primary input into temperature predictions and these outputs generally come with a higher accuracy than rainfall predictions. Above average temperature forecasts can be a good guide to approaching months of heat waves and extreme weather. Models showing below average 3 monthly outlooks can also signal increasing cloud cover and lower evaporation, and hopefully rainfall. These climatic conditions increase the chances of a denitrification event, resulting in losses of nitrogen fertiliser from the system and releasing harmful greenhouse gases in the form of nitrous oxide to the atmosphere.
     
  3. Do you know how El Niño Southern Oscillation (ENSO) affects you?
    Depending on your geographic location, leading indicators of ENSO such as the Southern Oscillation Index  (SOI) or Niño 3.4 Sea Surface Temperature indices driving rainfall and temperature will be variable. Most technical information on climate will offer commentary on Pacific Ocean warming, trade winds and SOI. Generally, from January to May, temperature and rainfall in most summer cropping regions is poorly correlated with ENSO.

    However, in the winter cropping season and the onset of summer crop planting ENSO is correlated much better to weather conditions and we need to assess what ENSO phase we are in (El Niño, Neutral, La Niña). Recent research by Prof Roger Stone found climate models had far greater accuracy during defined La Niña or El Niño events than they did in neutral years. Neutral years should not be confused with average years; variability will increase during ENSO neutral years and the longer term accuracy of seasonal models is reduced.
     
  4. ENSO state and fertiliser programs
    The risk of a high rainfall and a denitrification event during a defined La Niña (wet) ENSO phase is high, based on the strength of the connection with ENSO (Niño 4) during the growing season. Matching crop nitrogen supply with demand is a best management industry practice and an essential requirement to avoid denitrification occurring from waterlogging. Therefore during a La Niña growers are encouraged to apply nitrogen in crop through water run urea and continue to tissue test through early stages of crop growth. This will limit the nitrogen losses from the system and reduce the amount of harmful nitrous oxide emissions emitted into the atmosphere.
     
  5. Benchmarking computer guidance with indicators a must during planting.
    With such a large amount of information available on rainfall and temperature guidance and most short term models changing every 12 hours, it is unlikely even the most optimistic user to be fully comfortable with a forecast when applying knowledge to a farm management decision.

    Each computer generated colour chart has its own individual algorithm with a different set of weighted ingredients i.e. Sea surface temperature and atmospheric data. Spring planting time is a classic example of watching the phase of the Southern Annular Mode (SAM) index: researchers have found that the SAM influences moisture circulation patterns in the eastern Australian cropping region. When looking to plant summer crop or top-dress winter crop in the spring keeping one eye on the SAM index can help validate rainfall model outputs to some extent, and increase user confidence. 
     
  6. The big picture: is our business over-exposed to ENSO variability?
    Many farmers and farm businesses become frustrated when forecasted rain doesn’t materialise or drought occurs without warning. Primary production is very exposed to the vagaries of extreme climate variability and Australia has the most variable climate on earth. In other sectors, such as commodity trading or foreign exchange, firms protect themselves with hedging strategies to reduce their exposure to extreme variability. These are generally complex financial instruments which require constant monitoring to limit downside risk.

    From a big picture perspective farm businesses owners are, in a general sense, also managers and purveyors of financial capital. Financial research shows the correlation between farm returns and those returns from residential real estate, global share markets and various sectors of the economy as counter-cyclical. This goes some way to explaining why large multi-national life insurance funds are investing in Australian agriculture; to reduce their exposure to financial markets. A good example of portfolio diversification and natural hedging in agriculture is a business supplying crop herbicides to farmers in wet years and also supplying livestock liquid supplements in dry years, to dampen fluctuations in income. 

To assist in grower decision making, risk management, planning for upcoming crop inputs, irrigation scheduling, improving efficiency and reducing emissions, and other agronomic applications, the cotton industry provides updates on global models, indicators and climate commentary from international research agencies.

Moisture Manager is an information-rich, user-friendly and up-to-date weather and climate service essential for farming businesses. Moisture Manager is delivered by CottonInfo: the Australian cotton industry’s joint extension program, supported by Cotton Australia, Cotton Seed Distributors, the Cotton Research and Development Corporation. This project is supported by funding from the Australian government.

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