On the Economic Value of Seasonal-Precipitation Forecasts: The Fallowing/Planting Problem

Barbara G. Brown
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Richard W. Katz
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Allan H. Murphy
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The so-called fallowing/planting problem is an example of a decision-making situation that is potentially sensitive to meteorological information. In this problem, wheat farmers in the drier, western portions of the northern Great Plains must decide each spring whether to plant a crop or to let their land lie fallow. Information that could be used to make this decision includes the soil moisture at planting time and a forecast of growing-season precipitation. A dynamic decision-making model is employed to investigate the economic value of such forecasts in the fallowing/planting situation.

Current seasonal-precipitation forecasts issued by the National Weather Service are found to have minimal economic value in this decision-making problem. However, relatively modest improvements in the quality of the forecasts would lead to quite large increases in value, and perfect information would possess considerable value. In addition, forecast value is found to be sensitive to changes in crop price and precipitation climatology. In particular, the shape of the curve relating forecast value to forecast quality is quite dependent on the amount of growing-season precipitation.

1 Department of Atmospheric Sciences, Oregon State University, Corvallis, OR 97331. Address: Environmental and Societal Impacts Group, National Center for Atmospheric Research, Boulder, CO 80307.

2 Environmental and Societal Impacts Group, National Center for Atmospheric Research, Boulder, CO 80307. NCAR is sponsored by the National Science Foundation.

3 Department of Atmospheric Sciences, Oregon State University, Corvallis, OR 97331.

The so-called fallowing/planting problem is an example of a decision-making situation that is potentially sensitive to meteorological information. In this problem, wheat farmers in the drier, western portions of the northern Great Plains must decide each spring whether to plant a crop or to let their land lie fallow. Information that could be used to make this decision includes the soil moisture at planting time and a forecast of growing-season precipitation. A dynamic decision-making model is employed to investigate the economic value of such forecasts in the fallowing/planting situation.

Current seasonal-precipitation forecasts issued by the National Weather Service are found to have minimal economic value in this decision-making problem. However, relatively modest improvements in the quality of the forecasts would lead to quite large increases in value, and perfect information would possess considerable value. In addition, forecast value is found to be sensitive to changes in crop price and precipitation climatology. In particular, the shape of the curve relating forecast value to forecast quality is quite dependent on the amount of growing-season precipitation.

1 Department of Atmospheric Sciences, Oregon State University, Corvallis, OR 97331. Address: Environmental and Societal Impacts Group, National Center for Atmospheric Research, Boulder, CO 80307.

2 Environmental and Societal Impacts Group, National Center for Atmospheric Research, Boulder, CO 80307. NCAR is sponsored by the National Science Foundation.

3 Department of Atmospheric Sciences, Oregon State University, Corvallis, OR 97331.

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