Big swings and shock absorbers

Two years ago when we started this blog, the Midwest was going through a major drought and ended up eaking out just above 123 bushels per acre (bu/ac) in corn yield. Today the USDA released its latest projection for 2014, with a forecast for record corn yields of 167.4 bu/ac, due to really good weather (as Wolfram summarized in the last post.)

The difference of 44 bu/ac between two years this close apart is bigger than anything experienced in the history of US agriculture. The closest thing was in 1994, when yields were 139 bu/ac after just 101 in the flood year of 1993. When expressed as a percentage swing, to account for the fact that yields overall have been going up, the swing from 2012 to 2014 (36%) is near historic highs but still less than some of the swings seen in the 1980’s and early 1990’s (see figure below).

We’ve talked a lot on this blog about what contributes to big swings in production, and why it shouldn’t be surprising to see them increase over time. Partly it’s because really bad years like 2012 become more likely as warming occurs, and partly it’s because farmers are getting even better at producing high yields in good conditions. Sometimes I think of good weather like a hanging curveball – a decent hitter will probably manage a hit, but a really good hitter will probably hit a home run. So the difference between good and bad weather grows as farmers get better at hitting the easy pitches.

Moving on from bad analogies, the point of this post is to describe some of the changes we might see as the world comes to grips with more volatile production. What kind of shock absorbers will farmers and markets seek out? Four come to mind, though I can’t be sure which if any will actually turn out to be right. First, and most obvious, is that all forms of grain storage will increase. There are some interesting reports of new ways farmers are doing this on-site with enormous, cheap plastic bags. We have a working paper coming out soon (hopefully) on accounting for these storage responses in projections of price impacts.

Second will be new varieties that help reduce the sensitivity to drought. Mark Cooper and his team at Pioneer have some really interesting new papers here and here on their new Aquamax seeds, describing the approach behind them and how they perform across a range of conditions.

A third response is more irrigation in areas where it hasn’t been very common. I haven’t seen any great data on recent irrigation for grain crops throughout the Corn Belt, but I’ve heard some anecdotes that suggest it is becoming a fairly widespread insurance strategy to boost yields in dry years.

The fourth is a bit more speculative, but I wouldn’t be surprised to see new approaches to reducing soil evaporation, including cheap plastic mulches. There are some interesting new papers here and here testing this in China showing yield gains of 50% or more in dry years. Even in the Midwest, where farmers practice no-till and crops cover the ground fairly quickly, as much as a third of the water in the soil is commonly lost to evaporation rather than via plant uptake. That represents a big opportunity cost, and if the price of grain is high enough, and the cost of mulch is low enough, it’s possible that it will take hold as a way of raising yields in drier years. So between storage and mulching, maybe “plastics” is still the future.

A flood of crop data, and a study on drought

As the growing season gets under way in the Midwest, we have a paper out today in Science on yield trends in the region, and the role of drought. The paper is here and a summary story here. (I'll also post a link asap to a pdf for those without access to Science here). There's also a very nice companion piece by Don Ort and Steve Long here.

The paper relates to this post a while back on yield sensitivity. The short story is that lots of things could be making crops more or less sensitive to weather, so it’s an interesting empirical question as to whether overall sensitivity is actually rising or falling. And it seems a useful question, at least in the context of estimating the costs of climate change, because if sensitivity is declining then it would mean impacts of climate change might be overstated (i.e. systems are adapting), whereas if sensitivity is growing it would mean impacts could be bigger for future cropping systems than the current ones (what’s the opposite of adapting? Is anti-adapting a word?).

The new paper shows that for corn in the US, sensitivity to drought appears to be rising. Yields now seem about twice as sensitive to hot, dry conditions as they were 20 years ago. It’s not that farmers get worse yields in drought years than they used to, but they are really making fast progress under better conditions. Progress has been much slower for hot, dry conditions, which we think may indicate farmers and their crops are pushing the limits of what’s possible in those years. Or at least what's possible with current technology (Ort and Long mention this paper about how changing canopy structure might help, and there are other ideas out there too. Maybe a topic for another day).

See the paper for more details. What I wanted to focus this post on was something that may get lost in the paper's and coverage's emphasis on the "big picture", which is how cool the dataset we worked with is. And it’s posted here or here for people to play with if they want. The animation below gives a sense for the yield data for three of the states over time (red=high yields, purple=low). There’s over a million observations of corn and soy fields around the country since 1995, and associated weather variables. (We are not allowed to release anything that could be used to identify farmers, so the fields are random samples of a larger dataset and don’t have location information beyond the county level.)

The study also relates to this previous post on how cool the MARS approach to data analysis is. It played a very helpful role in this study, and it was surprising just how well it picked up effects of weather. The figure below shows the six factors identified as important, and the functional form identified. The most important (consistent with previous work) is high vapor pressure deficits in the period of 61-90 days after sowing, which is around flowering for corn. The MARS model with just these six variables explained about 32% of the variance in the dataset (a number we somehow neglected to mention in the paper!). That’s an awful lot of variance for a field level dataset with all sorts of variation going on, including in soils and off-season weather. I’d be curious if any other simple model could do as well (the data are there if you want to have a go at it).  

(Update 1: An interview I did is here, which are things I actually said, as opposed to what I'm sometimes quoted as saying based on a reporter's memory or attempt to jumble three things into one sentence.)

Irrigation in South Africa

Somewhat buried in a recent USDA update on the corn situation in South Africa are some interesting statistics on center pivot irrigation in South Africa. It’s a region where climate change is projected to have very negative effects on rainfed corn, so the trend towards irrigation could represent an important adaptation response, especially if it continues:

Irrigated corn area in South Africa has more than doubled during the past 12 years. It has increased from 100,000 hectares in 2000/01 to 240,500 hectares in 2011/12, as shown in Figure 5. Irrigated corn area in South Africa is also dependent on corn price, with the 2005/06 irrigated corn area being reduced by 73,000 hectares from the previous year when corn prices were low in 2005/06. In contrast, corn prices this year have been high and USDA/FAS forecast the 2012/13 irrigated corn area to be greater than last year’s record irrigated corn area of 240,500 hectares. By assuming average irrigated corn yields at 10-tons/hectare on 250,000 hectares of irrigated corn, USDA/FAS-Washington estimates the 2012/13 irrigated corn output to be nearly 2.5 million tons, or about 20 percent of South Africa’s total corn output of 12.5 million tons.

World Supply Estimates

USDA’s monthly report is out today. A lot of attention is going to the new corn estimates, which put forecasted yields at 123 bu/acre. Trend yield for 2012 is about 160 bu/acre, so that would mean a 23% drop from trend. That’s still not quite as bad as 1988, which was closer to 30% belowtrend. As Wolfram showed in a previous post, the heat this year has been about as bad as ever, the rainfall not quite as bad as 1988. So overall I don’t think the downward revisions by USDA should come as much of a surprise.

What I hadn’t been paying as much attention to was the situation in other crops. Lost in the news was that USDA actually downgraded the forecast of global production not just for corn and soy, but also wheat and rice. Wheat downgrades are mainly related to the former soviet union, with Russia and Kazakhstan seeing “July heat and dryness across most of the spring wheat growing areas.” For rice, there have been lots of stories about the late monsoon in India, although conditions seem to be improving there a lot in the last week.

Overall, the production forecasts for wheat, rice, and coarse grains are all lower than what production was last year. This is not so unusual in a historical sense. For example, I plot below the global production for these three since 1961 (all points up to 2010 are from FAO, last 2 are estimates/forecasts from the latest USDA numbers). Gray lines show years where production of all three was down from previous year. Since 1961 there have been 7 other years where all three crops dropped, including three since 2000. 

Even if it’s not unusual, it’s a little surprising to me that it would occur in a year that had such high prices to begin with. A lot of economists argue that yields are very price responsive, for example farmers will put more fertilizer or labor into a crop if prices are high. Others say that yields and production are not very responsive in the short term, but over the long term production will respond (mainly because of expanding area). I’m not sure yet what to make of the recent data, but it certainly seems like a good test of theory. Hopefully somebody out there is calculating what production changes over the past 3-4 seasons, when prices have been high, can tell us about the likely value of supply elasticity.