It’s two years since the Chicago Mercantile Exchange (CME) launched its snowfall derivative contracts giving market participants a way to hedge the risks of there being too much snowfall and that impacting their business and profits. The snowfall contracts have been gaining traction and increasing interest especially since the recent snow storms have struck the U.S.
This winter (and last) in the U.S. has seen heavy snowfalls across much of the country, along with lower temperatures than in previous years and the impact this has been having has caused an uplift in snowfall derivative contracts trading on the CME.
So far this year the CME has sold five times as many snowfall contracts as last year (according to this radio interview). That is significant market growth and shows that the CME and brokers are effectively marketing these products and drawing in new customers.
This winter has seen an increase in weather refund promotions as well and these are now beginning to become quite common among retailers looking to hedge the risks of the weather impacting their sales. In many cases derivative contracts traded on the CME underpin these promotional deals.
Snowfall derivative contracts appear to have a bright future as long as the snow continues to fall during winter months. Companies, such as snow removal and ski resorts, will always have a reason to hedge the risks of there being too much or too little snow.
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