Weathering the problems

Weather derivatives can reduce or eliminate the potential economic disastersthat extreme weather can provoke. Ross McIntyre of Deutsche Bank examines thevarious ways in which weather can affect key industries and reviews the benefitsof weather derivatives

Extreme weather can pose enormous risks for companies across a wide range ofindustries. The US Commerce Department1 reports that nearly a third of the USeconomy is directly affected by the weather each year. However, since 1997, agrowing number of sophisticated companies have managed to reduce or eliminatethese risks through the judicious use of weather derivatives.

Weather has, for a long time, had a direct and clear impact on agriculture andenergy. For example, the world coffee market will