Thursday, August 19, 2010

Satellites, Weather and Risk Management

(first published on the commoditywx blog)

Once again, we make the case for space-based research combined with advance weather outlooks as a simple yet powerful suite of tools for early identification of crop problems in key agricultural producing regions.  As an example, the map below is an indicator of vegetation health as derived via satellite for the wheat regions to the north of the Caspian and Black Seas.  There has been no shortage of coverage regarding the current crop problems afflicting Russia and Kazakhstan, so this region is an obvious area of focus.
The source of the data for this map is from MODIS, and this particular graphic depicts the Normalized Difference Vegetation Index, or NDVI, for the region, shown as an anomaly vs. the 5-year average (for mid to late July).  The NDVI derives information from both the NIR and the Red wavelengths in the electromagnetic spectrum, and a simple calculation is performed to assess vegetation health.  The index then assigns a value for crop health, and based on the color scale shown in the legend, it is clear that the region has been exhibiting severe vegetation stress - the important thing to note here is that wheat futures started to increase in July, then exhibited a violent spike in early August.  As this map is from mid to late July, we show that by using tools such as satellite indices in conjunction with the Weather Trends long range weather forecast for the region, the current impact in wheat prices could have been anticipated and financial effects avoided through a proactive physically based risk management strategy.

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