CME launches more weather contracts

The Chicago Mercantile Exchange (CME) will introduce six additional weather futures and options contracts at the end of the month. The CME’s new seasonal degree day index futures and options will offer coverage in the November-to-March heating season and the May-to-September cooling season. Initially, futures based on the degree day indexes for Chicago, Cincinnati and New York will be listed for trading.

CME currently offers monthly heating degree day and cooling degree day futures and options on 10 US cities: Atlanta, Chicago, Cincinnati, New York, Dallas, Philadelphia, Portland, Tucson, Des Moines and Las Vegas. In the first four months of 2003, 4,196 weather futures and options have traded on CME, compared with 287 contracts traded during the same period last year.

“By offering a variety of ways to participate in the weather markets, we believe our products will appeal to a broader spectrum of market participants, including reinsurance companies, hedge funds and commodity trading advisers,” said CME president and chief executive Jim McNulty.

The growth of the CME’s weather futures products has confounded sceptics who said the market was not ready for exchange-traded contracts. Other exchange-traded contracts have, however, struggled to take off. The London International Financial Futures and Options Exchange has only traded one contract of five lots since launching in December 2002. And Atlanta-based Weather Board of Trade is still to go live, following various funding and member commitment problems.