How many times have you heard comments such as, “the chances of (insert number here) excellent harvests in a row are nil”? Or something along the lines of, “we are due a bad one”? The proverb, “lightning strikes twice” is inherently the same principle. Given Australia’s three good seasons in a row and WA’s two monstrous consecutive harvests, it seems that every second conversation is pondering this issue – what are the chances? The interesting thing is, at least as a starting point, the chances of a good harvest this year are exactly the same as last year or the year prior.
What are the chances of flipping a coin and getting heads? Fifty percent. What are the chances of flipping a coin again and getting heads. That’s right, 50%. And for the third time and every time after, its still 50%. But what are the chances of flipping three heads in a row? The answer is 12.5% (50% x 50% x 50%). What a lot of people confuse is that each separate flip is mutually exclusive to the one prior and the past results have no bearing on the future results. But if you are forecasting a string of future results, then indeed each result is relevant and the probability of getting a particular string gets lower and lower with every flip you forecast and forecasting three bumper years in a row back in 2019 would have had a very low probability. But now we have two bumper seasons in the bag, the chances of a third are no different from the chances of just one. It’s a separate flip of the coin that is unrelated to previous seasons…sort of.
Harvest seasons, however, are not fully mutually exclusive and that’s because there are causal external factors that may not be independent of the previous year and farmer decision making, which is not random and is also influenced by previous seasons.
With the former, La Ninas, El Ninos, Indian Ocean Dipoles and even the recent Tongan volcanic eruption can influence a number of seasons in a row. The east coast of the country seems to be quite susceptible to this, with multiple years of drought followed by multiple years of floods seemingly the norm. Adding on to this, a wet season with a soft finish may mean that there is subsoil moisture for plants to access the following season with the converse for a dry season.
Farm businesses need to consider rotations, availability of working capital, reinvestment in capital equipment and even risk appetite when making decisions on a particular season, and having a good or bad season in the previous year can influence the latter year. If the bank manager won’t fund the decision to roll the dice and ‘go all in’ after a couple of bad seasons, then the farmer will need to pull back on the program unless they can fund it themselves!
Strategically, enterprises shift their business models and, over the last 30 years, we have seen more grain produced as the sheep flock dropped in the order of 65%. So, incrementally, good seasons have been getting better as hectares increase. Along the same lines, how many hay hectares became grain hectares when China dropped imports recently?
Finally, the market sends strong signals and the old adage, high prices solve high prices, also influences seasons. If the market is satiated from the previous big harvest, then the lower prices often see a shift in decision making and maybe that last paddock won’t be sown. We can also see this with commodity selection influencing the overall season result. How many extra tonnes would have been delivered if this year’s two point two million hectares of canola cropping area had been substituted for higher yielding wheat?
So, let’s argue that a bumper season is 10% likely in a pure sense (ie, one in every 10 years). Then say that linked weather events add on another 5% of likelihood, and farm management decisions another 5%, if there was a good season prior. In this case, it is possible to argue that another bumper season is actually MORE likely after a good season (but still only 1 in 5). But would the same apply for a third season? Will farmers take even more risk or cool their jets and go on European summer holiday? Will traders drop pricing as their boots are full? Will the weather patterns shift and the season break later? Will all the new precision seeders and 50 foot front harvesters bought with last harvest’s cashflow mean more crop out of the ground and less eaten by the sheep and Corellas?
What do you think will be the size of the 23/24 harvest?
