Seasonal Forecasts and the Trade-Off Between Payoff and Risk in the Australian Grains Industry.

Seasonal forecasts are valuable to the grains industry in Australia. Forecasts of the chance of rainfall exceeding the median can be used to inform management decisions such as fertilizer application, where the benefit can exceed A$60 per hectare. In the absence of a forecast, investing in additional inputs generally increases both risk (such as consecutive bad seasons) and return. A seasonal forecast allows strategic application of fertilizer so that returns are increased without a substantial increase in risk. Seasonal forecasts are not perfect, however, and the moderate skill of current forecasts means that they will give inaccurate guidance in some years. It is important, therefore, to understand the “payoff time” for a seasonal forecast. In other words, how many years must a farmer use a forecast in order to be reasonably certain that farm income will exceed that obtained if a forecast is not used?

A case study is presented for a typical wheat farm in Western Australia. In this medium-low rainfall region, the Australian Bureau of Meteorology’s seasonal forecast system, based on a global ocean/atmosphere dynamical model, has moderate skill at forecasting the growing season rainfall total. A realistic conservative management strategy in this region is to apply fertilizer only when the expected net return is double the initial cost. The forecast can be used to decide different application rates in years of above and below median rainfall based on long-term returns. If a farmer wants to be 80% sure that the forecast is more valuable that simply using climatology to determine a single application rate, then this will occur after just three years of using a forecast. More generally, there is evidence that seasonal forecasts are of considerable benefit to farmers over just a few years when assessed against a realistic conservative management strategy.