You know you can buy the weather$$
By: Doc Swagg
We’ve been bombarded with a barrage of weird weather over the last few years. We’ve been trying to adapt to the extremes in weather that proliferate both in and out of season. We’ve also become acquainted with vocabulary that’s unfamiliar to our weather lexicon like: Derecho, Polar Vortex, and Arctic Blasts. We’ve witnessed the devastation of Hurricane Katrina and Sandy. We’ve also seen mudslides, droughts and uncontrollable wildfires.
What if I told you that you can make money off weather in a multi-billion dollar industry? Would you invest? Would you do further research into this? Would you change your handling of money, knowing that even weather is for sale, and you are only a customer?
Let’s make it rain
Well truthfully people have been making money off the weather since early 2000. There are what’s called Weather Futures. The same way Wall Street conducts commodity trading of stocks, bonds, exchange traded funds and other financial capital, there is another entity called The Chicago Mercantile Exchange. This is where weather futures transactions occur. Simply put, futures is a contract that allows a purchaser to speculate or bid on the future projected price of a supply or resource, and lock in that price when that time arrives. This is good if you speculate properly.
This is the Chicago Mercantile Exchange link: http://www.cmegroup.com/
Let’s illustrate this for a better understanding. Suppose the current price for a pound of sugar is $2.00, as a competitor in the candy industry, I see the demand for sugar increasing. I can sign a futures contract to lock in a cost of $3.00 per pound in 2017. 2017 arrives and the demand for sugar is high like I predicted but the price of sugar in 2017 is actually $5.00 per pound. Well I’ve just saved a lot of money by locking in a purchase price of $3.00 per pound where as my competitors pay market price of $5.00. The down side is if I guess wrong and the future price drops, I’m then locked in a contract to pay $3.00 per pound and the 2017 price could be $1.50 per pound, so I’ve lost money.
Many weather futures bid on inches of rain fall, changes in temperature, snowfall and other variations of climate fluctuations. This has tremendous financial implications. Let’s extrapolate this knowledge into the American marketplace. When it’s cold like we’ve been experiencing lately, we increase demand for heat, and thus it’s a boom in revenue for the oil industry. When it’s extremely hot, we want air conditioning, and that is a big boom in revenue for utility companies. How does this impact the farming and agriculture industry?
Farmers must strategically plan and protect their crop production and harvesting capabilities. They must estimate rainfall, quantity of seeds, soil saturation, and more. If I can follow the trend of global warming, then it may be wise for me to lock in seed prices based on predicted increases in temperature.
There are weather derivatives just like stock derivatives. There are hurricane futures. The weather futures market was estimated to be a $19 billion dollar market back in 2010. The value has probably increased since then.
Striking 14 Carat “Cold”
All financial markets have forces that try to manipulate it for their financial gain. You are probably wondering how this happens with weather. Google the term “geoengineering”. There are agencies that have been conducting atmospheric climate manipulation and modification. This began with the experiments of Nikola Tesla (1856-1943) who created artificial lightening.
There was a bill that was submitted to congress called, THE WEATHER MODIFICATION RESEARCH AND TECHNOLOGY TRANSFER AUTHORIZATION ACT OF 2005, but the bill died. The bill clearly explains the research used to artificially modify the weather, and the Department of Commerce was one of the agencies included in the bill. Why would the Department of Commerce be included in this bill? You have struck gold if you have the scientific and technological community able to modify the weather, and you have the capital to hedge on your future projections.
The proposed bill: https://www.govtrack.us/congress/bills/109/hr2995/text
Anyway, now you know if you didn’t already, that windfall profits (no pun intended) can be made by investing in weather. Does this market encourage more geoengineering to increase profiteering in weather futures for individuals wealthy enough to participate in this form of hedging?
Some links below will fill in the blanks if you’re curious, and I’ve also included a video on weather derivatives from Bloomberg Business News.
http://business.time.com/2012/01/24/no-snow-no-problem-how-wall-street-profits-from-weird-weather/
http://edition.cnn.com/2009/LIVING/wayoflife/09/14/mf.get.rich.off.weather/
What are your thoughts on this?
http://www.youtube.com/watch?v=TuwuWPxUF-Q&sns=em
