Can a Seasonal Drought Forecast Be Wrong and Still Worth Using for Making Water Leasing Decisions?

This research highlight evaluates the economic value of seasonal drought forecasts for informing water leasing decisions in the Pacific Northwest. In irrigated regions governed by prior appropriation, junior water rights holders face reduced allocations during drought and must decide in early spring whether to lease water from senior rights holders. Seasonal forecasts, though imperfect, can inform this decision.

Using an economic valuation framework that accounts for forecast accuracy, drought probability, leasing costs, and agricultural profit, the study finds that seasonal drought forecasts provide measurable economic benefits in most of the region. On average, forecast information is worth approximately $87 per acre for a junior irrigator, with values reaching up to $174 per acre in the Snake Headwaters region. Lower forecast value is associated with low drought frequency, high forecast error, or frequent missed drought events. Results demonstrate that even forecasts that are wrong up to one-third of the time can still deliver positive economic value when used strategically.

This work was supported by the USDA National Institute of Food and Agriculture under project #1016467.