All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
Derivatives

Farmers Interest In Weather Derivatives Skyrockets

U.S. agricultural companies have been diving into weather derivatives over the last few months to supplement crop insurance.

U.S. agricultural companies have been diving into weather derivatives over the last few months to supplement crop insurance. Brad Hoggatt, chief operating officer at Overland Park, Kan.-based GuaranteedWeather, said the volume of weather derivatives traded with farming business has doubled, if not tripled, in the past three months. He estimated the agricultural sector now accounts for about 10% of the weather market's end-users. Hoggatt attributes the surge in volume to increasing awareness of the instruments and incomprehensive crop insurance packages. "The people we have spoken to are definitely looking at weather derivatives as a compliment to the government's crop insurance programs," he said.

Mark Tawney, a managing director on the weather risk management desk at Swiss Re Financial Products, has seen a flurry of interest in weather derivatives among agriculturalists across the globe. In South Africa, the lack of subsidization coupled with limited availability of private agriculture insurance is driving the weather derivatives market. While in India, the government is working with financial institutions to subsidize the purchase of weather risk protection, which has farmers excited about weather derivatives, he said.

Hoggatt explained the types of risk being offset by the agriculture sector compliment those being hedged by utility companies because utilities seek protection against cool summers and farmers against overly hot ones. "They generate liquidity by having naturally offsetting positions," he said.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree