Weather Events Weigh On Ag’s Bottom Line

The world is getting riskier. Just monitoring weather is no longer enough. Agribusinesses and farmers alike need to have a plan designed to navigate weather challenges. 
As an example of weather-related costs, ag co-ops’ insurance premiums have risen 40% or more this year. 

In 2021, Hurricane Ida’s direct hit on Bayer’s largest glyphosate plant pushed the manufacturing site offline for nearly two months. That one event sent supply shockwaves through the agriculture industry. Bayer saw herbicide sales jump 44% in 2022 after other producers and constrained Chinese suppliers failed to plug the gap.

As extreme weather events affect the profitability of agriculture, here are four areas to bring focus to the ripple effect.

Warmer Oceans Set the stage for storm intensity, weather cycles

“We’ve never had warmer oceans,” says Jon Davis, chief meteorologist with Everstream Analytics. “We care about this because this is the fuel. This is the driver that brings the extreme weather events to the forefront that affect agricultural and energy markets and that affect people on a global basis,” he says. 

Using satellites to measure ocean temperatures around the world, meteorologists have recorded the warmest sea surface temperatures in 40 years, Davis explains. Using the technology to explore paleo meteorology, he says it could be extrapolated these are the warmest ocean temperatures in thousands of years. 

Ocean temperature fluctuation triggers transitions between El Nino and La Nina events. 

“The past three years, we were in a La Nina event with colder than normal water temperatures in the central and eastern Pacific. This is a year of transition. We started out with La Nina conditions, and now we’re seeing moderate El Nino conditions develop,” Davis explains. 

The U.S. has experienced more dryness due to the La Nina cycle, but that could change into next year. Davis expects a year of impact from this El Nino.

Hurricane Season

“In the seven global basins in the world, every one has had a Category 5 storm this year. That has never happened,” Davis says. 

He says the warmer ocean temperatures provide the fuel to seed this level of storm activity.

“It’s the energy or octane that storms have to rapidly intensify and rapidly develop even in pretty far northern locations,” he says.

Waterway systems

Dryness and drought have brought key waterways to worrying levels for global supply chains and trade. Mississippi River levels are lower this year than they were this time last year. And last year was a historically low water event. 

“There’s a couple times a year where it’s game time more than others, and harvest season is one of those periods. You need to have our supply chain operating on all cylinders,” says Soy Transportation Coalition executive director Mike Steenhoek. “It’s a movie sequel none of us wanted to watch, but yet we’re watching it. It’s having an impact on the efficiency of barge transportation.”

This fall, fewer barges are connected to form a single unit. And barges are being loaded to lighter weights. 

“This is a major issue from a transportation and logistics standpoint,” Davis says. “There are some alternatives to the Mississippi, but the alternatives are extremely expensive. And there’s certainly no easy answer.”

The supply chain is also being affected by issues on the Panama Canal, which handles 40% of all U.S. container traffic. 

“Panama is one of the wettest countries in the world. But they need incredible amounts of fresh water to make the canal work to take ships up 10 stories and then down 10 stories.” Davis says. “It’s all done by fresh water in the lakes in the middle of Panama.” 

He notes 80 million gallons of fresh water are required for each of the 15,000 vessels that go through the Panama Canal in a year. Low water levels have slowed traffic since mid-summer. Lake Gatun, the primary lake supporting the canal, is at its lowest seasonal level since 1965. 

“We don’t see any improvement in the short term, and we don’t see any in the long term because El Nino tends to suppress rainfall across Panama,” Davis says.  

Extreme events bring higher levels of loss

Ken Zuckerberg, lead farm supply and biofuels economist for CoBank, says insurance premiums are on the rise for ag co-ops, and at least one underwriter has exited the space. 

“The price of coverage is going up because the markets providing this coverage are worried about these trends — the frequency of events continuing,” he says. 
U.S. losses to weather- and climate-related catastrophes totaled $170 billion in 2022, $155 billion in 2021 and $114 billion in 2020. Last year’s total almost tripled the long-term average dating to 1980.

“Higher losses translate to higher rates — i.e., the premium charged per unit of loss exposure—which is logical to adequately compensate the insurance carrier for the increased risk of more frequent and severe losses,” he says. 

Zuckerberg reports ag cooperatives paid between 40% to 60% more (risk-adjusted) during the 2023 renewal season. For customers who experienced property losses from 2020 to 2022, insurance rates increased up to 100%. 

“Deductibles are increasing — sometimes five times the original level — and there are a lot of exclusions. The devil is in the details,” Zuckerberg describes. “If there was ever a time to dedicate some internal staffing to the risk management function, it’s now.”