Betting on snowfalls
We’re a tough, hardy, wintery crowd here in Wisconsin. The most recent snow storm slowed us down for a day or two, but we’ve got winter figured out pretty well and are able to get out and enjoy the snow.
Heck, we even have a football team that doesn’t let snow, cold, ice or frozen tundra keep them from winning the XLV Super Bowl. (What a great game! Hats off to the Steelers)
This winter many US cities, towns and entire states have broken long standing records for ice, snow, and arctic cold temperatures. From coast to coast many of us enjoyed more than a few days off due to extreme weather. The disruption in and cost to businesses can be staggering. Think back to the hundreds of flights delayed, diverted or canceled by the latest Midwest and East Coast blizzards.
Now businesses (and gutsy individuals) can hedge against winter. According to a story posted by CNN Money.com the Chicago Mercantile Exchange began offering snow futures in 2006 with just two contracts and now offers more than 6 locations. Investors can bet on snowfall levels in New York City’s Central Park, and at the Chicago, Minneapolis, Boston and Detroit airports.
Other contracts allow for businesses to hedge against either too much, or too little snow. Here’s one example: The owner of a snow removal company bet that Chicago would get more than the 37 inch average snowfall this winter. He bet the snowfall would total more than 49 inches. He bought a contract for $37,000 that would pay his snow removal company $16,000 for every inch above the 49-inch level.
During the latest blizzard, the contract settled for $130,000. Hopefully, this will help offset higher costs associated with his company having to clear that much more snow. The reverse wager could be profitable if he were to bet on too little snow next year.
Look for a wider array of winter and weather related contracts being used by more and more companies. While we can’t control the weather we can at least manage the financial impact of it. And hopefully, you’ll get out and enjoy winter.
