How snow affects the economy is a good example. The impact of weather on the US economy is significant, said Steve Gaddy, Meteorological Data Manager, MDA EarthSat Weather. Solutions are also needed for the construction and transportation sectors. What’s needed for the agriculture market right now? According to Barratt, growers need easy, online access to pricing for weather certificates, transparent monitoring of positions and payouts and access to solutions that non-technical people can understand. He sees a need for a ‘down grade’ protection contract, which could offer clients protection on the order of Aus$18-Aus$48 a ton. Wheat growers face ‘down grade’ risk when rain causes the crop to be graded at a lower level and therefore a lower price, said Jonathan Barratt, director at WeatherPro. Wheat growers can also benefit from weather covers. In year seven, profit would be Aus$523 without insurance versus Aus$1,023/Ha with weather insurance.

For year six, the profit would be Aus$1,203/Ha without insurance versus Aus$1,618/Ha with weather insurance.

For the two worst seasons - years six and seven in the 10-year average – there’s a distinct advantage to having weather insurance, according to Lane’s calculations. Allowing for annual insurance premiums and payouts, Lane said that for a 10 year average, the estimated profit would be Aus$1,994 per hectare (Ha) with insurance and Aus$1,970/Ha without insurance. To cover below average rainfall in the Autumn and Spring, dairy farmers could take out weather insurance, proposed Lane. Even the top 10% of pasture-based dairy farmers (in this case Gippsland, Victoria) “can’t afford to have too many bad years,” Lane said. To manage risk, traditionally farmers have paid down debt and built equity as well as accumulated fodder reserves. Dairy farmers are 80% dependent on rainfall or irrigation from surface dams, said Neil Lane, technical manager at Intelact Australia. Optimists also exist in the Australian dairy industry, but so do realists. In running the pilot, several lessons have been learned, Book said, including that “farmers are eternal optimists,” which creates challenges for companies providing risk management tools. The product has been introduced as a pilot. Book’s company has developed YieldShield, a “tool to transfer the risk of a growing season not reaching its reasonable expectations.” This isn’t an income guarantee cover, but a yield model based on basis risk. The weather-based derivatives market covers rain and frost. Right now, existing insurance products are limited to hail, fire and frost, said Peter Book, underwriting manager at Primacy Agricultural Insurance Specialists. The Australian agriculture sector is seeing more weather risk products tailored for the needs of farmers, growers and traders. Interest is rising from the agriculture sector With the latest WRMA Industry Survey expected to be released in May, international practitioners anticipated an increase of new end-user participants and more repeat users of weather derivative products. Trends in the weather market were discussed by an international panel of weather experts, who made their own predictions about the direction of the weather risk market. Walker cautioned attendees of a tumultuous 2011 with anticipated effects more intense than 2010. Like his father, Walker used the theory of sun spots to correlate sun spot activity with an increase in dramatic weather events including volcanoes, floods, drought, and earthquakes. WRMA’s Australian Meeting was held 9-11 March in Melbourne.Ĭlimatologist Hayden Walker briefed attendees on the increasing need for risk management with a predicted increase in extreme weather events for the near future. MELBOURNE (17 March 2011) - Managing weather risk can be challenging but, as attendees learned at the Weather Risk Management Association’s Australian Meeting, more creative and innovative tools are available to help Australian businesses handle their exposure. Get a ticket soon to ensure you can attend. Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference.

Mda weatherdesk