Storm Exchange Releases Fall 2008 Weather Risk Outlook : 15-25% of US Corn Crop at Elevated Risk for Frost Damage; Cool Weather is a Boon to Retail Sales; Hurricane Activity to Drive Energy Price Volatility

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Storm Exchange, Inc., a market leader in weather-risk management services, today released its Fall 2008 Weather Risk Outlook, a 90-day projection of the impacts of the weather on businesses in the agriculture, retail and energy industries. Based on a combination of atmospheric climate trends, advanced computer-driven seasonal prediction models and analog forecasts, the Storm Exchange Fall 2008 Weather Risk Outlook provides businesses with statistical probabilities of adverse weather conditions on a regional basis.

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We should see strong early sale check outs in sweaters, fleeces and outwear this fall, which should all be selling at full margins

"This fall presents a classic weather hedging scenario, where cooling temperatures are likely to wreak havoc on agriculture while simultaneously stimulating retail sales," said Paul Walsh, Storm Exchange Chief Strategy Officer. "For the season ahead, we see agriculture still struggling to gain traction, with an increased risk of frost threatening an already unstable corn crop, while that same cool weather pattern is going to drive consumers into the mall for seasonal apparel. This cooling trend will be set against the backdrop of a very active hurricane season that will continue to drive price volatility in the energy sector."

Agriculture Weather Risk

The Storm Exchange corn yield estimate now stands at 144 bushels per acre. This number represents a 6% cut below trend and a sharp reduction from the USDA's August monthly prediction of 155 bushels per acre. This yield forecast is one bushel higher than the company's forecast last month, due primarily to improvements in Nebraska crop conditions. Storm Exchange attributes the projected below trend shortfall to a combination of delayed planting across the corn belt caused by the severe flooding that occurred in the spring of 2008. The flooding permanently impacted 10-12% of US corn, meaning that perfect weather conditions are needed create bumper crop yields to make up the difference. It also means that the corn will require an extended warm growing season to mature safely before the first fall freeze. In Iowa, for example, Storm Exchange calculates that the likelihood of a severe freeze is 30% higher than historical average. Across the corn growing region of the US, approximately 15-25% of the US corn crop is at risk of frost damage.

"With the crop going in the ground so late and not maturing quickly enough, we now have the double jeopardy situation of immature corn and cold weather on the horizon," said Gail Martell, Storm Exchange Senior Agriculture Analyst. "Whether we encounter freeze damage or not, there is simply no avoiding the fact that shallow kernels will develop in late-maturing corn with cool temperatures that hinder ear-filling."

Retail Weather Risk

For a struggling economy, the best comfort may be found in a sweater this fall. With cooler temperatures coming earlier this year in key Northeast and Midwest cities, retail sales of seasonal merchandise should get a boost, according to the Storm Exchange Fall 2008 Weather Risk Outlook. The firm's analysis suggests that for every 1°F the monthly temperature drops in September, comparable store sales at specialty apparel and department stores increase 50 basis points and 20 points in October, which should lead to an incremental 1 to 2% rise in retail same store sales over that stretch. Regionally, this fall's weather will favor the Great Lakes region, with strong retail sales expected in major metro areas like Chicago, Detroit, Minneapolis and Toronto.

"We should see strong early sale check outs in sweaters, fleeces and outwear this fall, which should all be selling at full margins," Walsh explained. "However, November had an unnatural boost last year thanks to pent up demand for these same products because of the warm fall. Retailers should resist the temptation to overbuy."

Energy Weather Risk

While the Gulf region's refineries dodged the brunt of Hurricane Gustav, the energy sector remains at risk as hurricane danger will be at its peak from September through mid-October. There are six to seven more named storms likely on their way throughout the season, according to the Storm Exchange Fall 2008 Weather Risk Outlook. Already, the cumulative wind energy generated by hurricanes this season has been well above average. On a historical basis, years that have seen similar levels of hurricane activity have chalked up approximately $6 billion in losses. This figure stands in stark contrast to an extremely benign 2007 season. Storm Exchange puts the probability of additional storms beyond the current active storms striking the mainland after September 15 at 69%, with an extremely elevated risk for a Mid-Atlantic strike. The continued threat level is likely to remain a risk to energy price volatility, regardless of any supply disruptions resulting from a hurricane strike in the western and central Gulf.

About Storm Exchange, Inc.

Storm Exchange provides weather-related financial and information services in the language that corporations and investors understand best: the bottom line.

Storm Exchange helps corporations improve performance by enabling them to identify, measure, manage and hedge the impact of weather on income and expenses. For investors, traders and insurers, the company delivers information solutions that enable them to understand and anticipate how weather impacts investment and underwriting performance.

Storm Exchange solutions focus on the business context and financial relevance behind the weather. Services include media, industry-specific intelligence, correlation models, proprietary analytics, forecasting tools, and weather hedge solutions. These services, many of which are available on leading information platforms such as Bloomberg, address the fundamental drivers of financial performance that result from exposures to precipitation, wind, temperature and other climate variables.

Storm Exchange is headquartered in New York and operates a weather research center in State College, PA. The company is backed by leading private equity investors Venrock Associates and RRE Ventures.

Release Summary:

Storm Exchange today released its Fall 2008 Weather Risk Outlook, a 90-day projection of the impacts of the weather on businesses in the agriculture, retail and energy industries.

Keyword Tags:

agriculture, corn, corn yield, energy, energy prices, hurricane, retail, retail sales, usda, weather

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John Roderick
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