CME Group and Storm Exchange weather risk study released

by Artemis on April 29, 2008

The CME Group (provider of the widest range of benchmark futures and options products available on any exchange) and Storm Exchange (the company creating a financial market to help businesses better plan for and manage their weather-related risks) have teamed up and announced the release of the results to a study on corporate weather risk management practices.

There are some really insightful pieces of information to be gleaned from the results, some highlights of which are below.

  • 86% of early adopters of ‘Weather Hedging’ find it a useful solution
  • 51 percent of the executives questioned concede that their companies are not well prepared to cope with the current day-to-day economic risks posed by the weather
  • just 42 percent of those surveyed said their companies have attempted to quantify their exposure to the weather
  • only 10 percent had used weather options or futures to hedge that exposure
  • 59 percent of senior finance and risk management executives said their companies’ exposure to risks stemming from weather volatility meant that the impact on their financial performance could be “significant” (38 percent) or “severe” (21 percent) and that they need protection from it
  • 34 percent of all companies surveyed said the weather has become more volatile in recent years; that number jumps to 43 percent in the energy and agriculture sectors
  • 82 percent of those surveyed said they may have to make changes to their business models over the long term to cope with climate change and weather volatility
  • 51 percent of respondents said their companies are not well prepared to cope with the day-to-day economic risks of the weather
  • 74 percent of energy company executives said they have attempted to quantify the impact of weather volatility on their businesses, making energy the lone industry where companies have made a systematic attempt to quantify the impact of weather volatility on their business. By contrast, only about one-fourth of agriculture and retailing businesses have made the effort
  • of those respondents who said their companies have used weather hedging tools, 86 percent said they found them useful
  • 45 percent of those surveyed said they did not think there were any effective or cost-effective ways to manage weather risk

That last fact I find slightly worrying for the marketplace. If company executives cannot see the value in this market what hope is there for the current growth rate to continue?

Full details on the CME website.

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