What is in this article?:
- New tools protect crop producers when dire weather strikes
- Total Weather Insurance
- eWeatherRisk contracts
Weather insurance can help protect farmers' bottom lines when destructive weather strikes. Read additional weather stories from Farm Industry News:
Weather hedges from eWeatherRisk are customized to specific weather perils. They are sold in $10,000 denominations based on the value at risk, not on a per-acre basis. Working with a sales agent, a customer can build a contract package that protects against a range of key growing season weather risks.
“We offer protection for any crop and any risk period,” says O’Hearne, who has worked in weather risk management for energy, agriculture and other industries and is past president of the Weather Risk Management Association. “The customer decides what he wants to protect against and together we structure a contract.”
Contracts, which must be purchased at least 15 days before the beginning of the contracted risk period, are tied to weather data from local weather stations chosen from a list of 6,000 weather stations. Using historical data from those stations, contract documents show theoretical contract payouts over the past 60 years, as well as average, minimum and maximum data for the weather parameter being hedged.
For example, a contract to protect against excess heat (daily highs above 85°F) during pollination in Franklin County, Iowa, shows 18 payouts ranging from $20,000 to $190,000 on a $200,000 contract over the past 60 years. The example $200,000 contract for the month of July would sell for $28,760. It would pay $2,353 per cumulative degree when the daily average cumulative temperature above 85°F exceeded 75 degree days.
As with other hedge instruments, customers must meet financial requirements — including a net worth of at least $1 million — to purchase contracts. Contracts are available through select federal crop insurance agents and commodity brokerages. For more information, and to access a weekly weather newsletter to inform customers about emerging weather risks, visit www.eweatherrisk.com.