Webinar Recap: Weather Disruptions and Effects on Agriculture

Published Aug 22, 2022
In the webinar:
-The weather has a huge impact on agriculture. Weather changes affect agricultural output, changing prices, and other economic variables.
-Beef production in Australia was notably affected by the 2017-2019 drought. Its effects are still seen in 2022.
-Many parts of the US, South America, and Europe face dry conditions. These are expected to continue in the upcoming months. The global output of grains has been forecasted lower for 2022 and 2023.
-The frequency of droughts and floods is increasing from India through Chile, but there are several measures to protect crops and farms from the changing climate.

Overview of how weather affects agriculture and its economics:

•The weather has a huge impact on agriculture. Changes in the weather, temperature, precipitation, and CO2 levels, heavily influence agricultural production, the quality of the products, and how those products are moved to get to the final user. In turn, these changes in agriculture production and quality affect product prices, their volatility, global trade patterns, and consumer preferences.

A case to illustrate how these variables interact: Beef Production in Australia.

•Australia faced drought in many regions throughout 2017 and 2019. With less pasture, cattle slaughter, and therefore beef production, increased considerably in 2019, when the drought was at its worst. Cattle herd numbers declined considerably. As the rains started in 2020, producers began a herd rebuilding process still in place. Beef production, as there were much fewer cattle to slaughter, declined to multi-year lows.

•Beef exports from Australia declined along with production. Exports touched decade lows in early 2022.

•The US, one of the largest beef importers in the world, started to look elsewhere to fulfill its growing demand. Brazil was the major winner, increasing its share in the US market to levels comparable to Australia's in Q1 2020.

Another case where the weather has played a part: Imported Sardine Prices in Japan.

•Imported sardine prices in Japan rose this August to their highest levels in at least five years for this time of the year. The most recent typical seasonal hike, last December, was also the largest in the period.

•Sardine supply in Japan, a major sardine exporter, has eased in the past years, but it has become more difficult to import as well.

•Climate changes affect sardine production. The most recent research shows a positive correlation between sardine size and lifespan to cooler water temperatures. Further increases in ocean temperatures, as we have seen in recent years, would lead to further declines in supply.

There are a great number of examples where weather affects agriculture output and prices, many of which can be found in Tridge:

A Decrease in Blueberry Production in North America Pushes Prices Up

Australian Fruit and Vegetable Crops Affected by Heavy Rains and Cold Weather

Damaged Persimmon Crop in Spain Due to Adverse Weather

Overview of current weather trends:

Source: CPC NOAA

Over the past two years, there has been significantly lower than average precipitation in several parts of the world. This may be due to the extended “La Niña” phenomenon, expected to end in late 2022. Perdurance into 2023 hasn’t been ruled out yet.

•The US: Abnormally dry conditions and severe drought persist throughout Western and Southwestern United States. Several crops from grapefruit, rice, and cotton have already been negatively affected. Some areas of the corn belt have been affected by drought as well.

•Central America: Northeast Mexico is also facing very dry conditions. Monterrey, the largest city in the region, is facing water shortages. Livestock herd forecasts throughout the region have been recently slashed.

•Europe: Most of Europe is facing very dry and hot conditions. Several products, such as Spanish Maize, have seen price hikes. Sunflower yield in Andalucía has been recently forecasted to be lower. Olive and avocado harvests have also been affected, as dry trees are being removed. In France, there were reports of a stoppage in the production of some cheeses. In Europe, in particular, milk prices are poised to rise. In the UK, there could be shortages of several vegetables, such as broccoli. In contrast, some areas have seen much favorable weather, such as Turkey, which recently reported an increased output of cherries.

•South and East Asia: South and Southeast Asia are facing very different, much wetter conditions, which are benefitting seasonal crops. In India, however, monsoon rains have been unequal, which poses a risk to rice production. Heavy rainfall in Vietnam, atypical in the harvest season, has also reportedly affected rice and shrimp production. Meanwhile, there are parts of Central and East Asia which are facing very dry conditions. The Yangtze river in China is at its lowest level for this time of the year on record. Autumn crops in this region are threatened. Livestock is reportedly being moved from the most affected areas by the drought.

•Africa: There are some drought conditions in West and Central Africa, but more favorable weather in the South. According to our local representatives, drought in Uganda has affected the size of coffee beans and the coffee yield of the first harvest of 2022. In contrast, favorable weather in South Africa has led to output forecast upgrades for citrus products.

•Brazil and Argentina: Most of Brazil is facing very dry conditions. Weather anomalies in late 2021 caused 2022 coffee production to decline substantially, which drove price increases through 2021 and early 2022. Production is expected to be substantially lower than 2020, lending further support to prices. Meanwhile, dry conditions are also leading cattle slaughter to accelerate, exacerbating beef production. Some areas of Argentina are also facing very dry conditions. Cattle slaughter, and therefore beef production, has been recently reported increasing. As a result, July 2022 was the first month without a beef price hike in eight months.

•Australia: Eastern Australia is facing very wet conditions. “La Niña,” recently declared over by the Australian Bureau of Meteorology, has had the opposite effect of what has happened in North America. These wet conditions have been beneficial for several crops, such as wheat. In addition, rains have greatly improved pasture conditions which in turn has led to a satisfactory cattle rebuilding process. However, heavy rains negatively affected crops of beans and snow peas, as well as causing some logistical disruptions.

Overview of agriculture and weather outlook:

•The US: Drought is expected to persist in Texas, the Central Plains, and the West. Drought development is expected in the Midwest. Drought persistence has caused recent forecast downgrades for rice, cotton, and oilseed production.

•The drought in the US has already pressured live cattle prices in recent months. Cattle slaughter is increasing as there is less pasture, but the prospect of lower than average carcass weights and a lower herd in 2023 seems to be pricing. The USDA has also recently shifted its 2022-2023 forecasts for higher beef prices. High feeder prices are also expected for the upcoming periods.

•Europe: Warmer and drier conditions are expected to remain in place over the next two months. 2022 crop yield forecasts from the European Commission have been lowered in July, especially for summer crops. Total cereals’ yield is expected to be 2% below the five-year average. Sunflower, soybean, and green maize are expected to end 2022 with levels lower by 6-8% than the 5-year average.

•There is an expected cattle feed deficit in the upcoming months, as the drought in Europe is already pressuring corn production. Corn futures prices in Europe are trading again near May’s multi-year highs.

•Australia: Above-average rainfall is expected for most of Australia over the next three months. While officially over, there is a possibility that “La Niña” conditions could return, triggering further rains in the East. Rain is mostly beneficial for crops, but heavy ones could delay the 2022/23 harvest season.

•The herd rebuilding process in Australia continues due to the favorable weather conditions. Beef and veal production is expected to increase 5% YoY. Further annual growth is expected in 2023 and 2024. Prices have considerably eased from their record high levels seen in February 2022 as stronger production and a brighter outlook seem to have been priced in.

Panel Discussion:

Q1: What are the major weather issues experienced in your market in the past couple of years?

Ron: During the past 5–7 years, the major weather changes have been landslides, heavy rainfall, hailstorms, thunderstorms, and cloudbursts. In India, the contrast between the hot land and cooler sea, which usually drove the monsoon patterns we used to see, has been lower significantly. 2016 and 2017 were drought years, with a monsoon deficiency of around 65%. Then, in 2019 and 2020, we saw intense rains that occurred over just a few months, while drought-like conditions prevailed for the rest of the year.

These extreme rainfall shocks reduce farm revenue output, while extreme temperature shocks destroy entire crops. According to a survey by the government of India, these climate changes reduce farm incomes by 15-18% on average.

To conclude, the frequency of droughts and floods is increasing, affecting farmers very badly.

Pablo: From our side in Chile, we are facing a drought every year moving south. Every year we face the risks of late rains or frosts that affect production. In the same line, we’re facing short but intensive summer rains. In summer 2021, we had heavy rain in January that affected two main regions of the table grapes that were just kicking off, almost 8% of the area couldn’t be harvested.

Q2: What are potential ways to protect crops and farms from weather anomalies?

Pablo: Different technologies can be used. For rains, we usually use plastic tunnels, mostly used for berries or small-sized crops. For bigger crops, we use plastic roofs. In the winter, to protect crops from heavy frosts, we usually use windmills or heaters, and also we can use water springs. For hail, we use net covering.

Ron: For droughts, some potential protection ways are: the construction of farm ponds and rainwater harvesting or mixed or inter-cropping. For floods, deep drains or raised bed and furrow systems of farming. For unseasonal rains, follow the local weather forecasts carefully and harvest the crops that will mature just before the start of the rains; for hailstorms, cover the crops with some material like wind sheets.

Q3: How can producers maintain sustainability for production amid weather disruptions?

Ron: Mainly through quality improvement. Quality attributes such as freshness, safety, and hygiene, have always been the most important factors in agri-food product selection. Due to weather disruptions, finding food alternatives creates a better supply chain, lowering inflation and balanced protein intake. Based on historical data and priority assessment, a particular food is linked to customer needs and agri-food supply chain risks for risk management. The government of India and the agrifood industry are reaching out to local small farmers to grow and sell their produce at Market Commodity Centers.

Pablo: We have seen two ways to maintain sustainability for production amid weather disruptions: Crop management and market management. The first one refers to the reduction of production costs, an increase in productivity, and the efficiency of working hours in the field. For the market, we seek to increase the percentage of the volume exported by the acre and also seek market alternatives.

Q4: How does weather affect the prices of agricultural products and trade?

Pablo: It depends on how the weather affects production. A frost last May affected citrus crops, leading to a drop of 30% in supply and creating higher prices. You must consider all the competing markets to determine how prices are affected.

Ron: Agricultural price transmission is linked to specific weather variables such as temperature, precipitation, and availability of irrigation water. These affect exchange rates, market structure, and the net food trading position of a country due to changes in commodity stocks. Weather shocks affect crop prices through impacts on supply and by changing people’s perceptions and expectations about the future price dynamics, which is reflected through their storage decisions.

Q&A: What is the expected inflation for meat?

René: For Australia, the above-average rainfall has led to a satisfactory cattle rebuilding process that drove high demand for livestock. As the process has advanced, demand has been waning a bit. This could reflect lower livestock prices and, therefore, beef prices. As production is forecasted to increase, prices in Australia are seen with limited upside as well. Labor shortages and high feed costs remain bullish factors.

For Brazil, due to the drought, cattle slaughter and beef production are accelerating, which is bearish for prices. Another bearish factor to consider is how inflation is affecting consumers worldwide.

Q&A: How does the current weather affect avocado and berries in Mexico?

Juan Carlos: These are two very different products regarding their weather needs. For avocados, the major threat is a lack of rain. So far in Mexico, we’re going through the rainy season in the major avocado-producing regions. The question is how long it will rain and if it rains when it is supposed to. If it doesn’t, what gets affected is the price of avocado, as producers need to pump water to the facilities. So far, there are no reports this will be an issue for the current harvest. For berries, mainly grown in northern Mexico, they need to reach lower temperatures to flower. An affectation, if it occurs, would be seen in the winter. Production in Mexico normally doesn’t suffer much damage. Hopefully, this year there will be no affectations.

The slides can be viewed here.

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