Storm Exchange: Summer 2008 Weather Risk Outlook

by Artemis on June 4, 2008

Storm Exchange have just released their Summer 2008 Weather Risk Outlook.

Paul Walsh, Chief Strategy Officer at Storm Exchange said; “Our weather risk outlook is different than most weather forecasts because, in addition to using state-of-the-art atmospheric research technologies, we also analyze 150 years of historical data to give businesses a risk probability that they can use to measure, monitor, anticipate and manage their climate and weather-related risks. The biggest weather risks on the horizon this summer are likely to focus on rain and normal to below normal temperatures in the Midwest and East Coast and a greater than average hurricane threat on the East Coast and in the Gulf region.”

Details of the release are below:

Agriculture Weather Risk

According to the Storm Exchange Summer 2008 Weather Risk Outlook, corn crops will feel the greatest impact of adverse weather conditions. Storm Exchange projects that U.S. corn yield will be 7% below trend this year, largely predicated on delayed planting dates and cold, wet seed beds. To-date, temperatures in the key corn growing regions have been 3-5°F below normal, retarding germination. Continued cooler than average and moist conditions throughout the summer months will likely result in a sharp yield loss for 2008.

Retail Weather Risk

This same pattern of cooler than average summer weather in the key Midwest/Northeast markets will result in decreased demand for summer merchandise. May was extremely unfavorable in these regions, resulting in weak sales of seasonal merchandise at premium prices. While true summer buying will pick-up in mid-June as summer-like temperatures finally move into the Midwest and northeast, it will be at lower margins for retailers, likely having a significant impact on Q208 corporate earnings in the retail sector. Home centers and mass merchants in hurricane-prone areas may see a bittersweet increase in sales due to the heightened risk of hurricane landfall this summer.

Travel Weather Risk

Flight delays and cancellations are likely to increase over the peak summer travel months, based on the high probability of wetter than normal weather in the Midwest and eastern states. Based on the Storm Exchange Summer 2008 Weather Risk Outlook, the hub airport with the highest risk for increased weather-related delays will be Atlanta Hartsfield (ATL). The airport most likely to improve this year will be Dallas-Fort Worth (DFW), based on largely favorable weather patterns in the southwest.

Energy Weather Risk

In the energy sector, the increased threat of hurricanes, particularly in the Gulf region, where a number of drilling rigs are located, poses the greatest potential threat. According to the Storm Exchange Summer 2008 Weather Risk Outlook, there is an 84% probability of a U.S. hurricane strike in 2008, a 4% increase over the long term average. The probability of a strike in Gulf region is 58%, a 5% increase over the long term average. The probability of an intense (category 3 or higher) strike in the Gulf region is 23%. The increased threat level is likely to have a significant impact on energy price volatility, regardless of any supply disruptions resulting from a hurricane strike in the western and central Gulf.

“There is a very strong psychological component to the weather’s impact on business,” explained Walsh. “When it is cold in the summer, retailers sell fewer tank tops; when a major storm starts brewing in the tropics, energy prices spike. As much as the actual weather events have a bottom line impact on the economics of a business, the probability of those events can also impact markets. With our Summer 2008 Outlook, we’re helping businesses take some of the guess work out of the equation.”

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