New tools protect crop producers when dire weather strikes
By David Hest | |
Penton Business Media |
Last summer, when extreme heat hit his crops,
“It helps me sleep better at night when the weather goes against me,” says Kenady, who farms in west-central
Kenady’s in-season payout resulted from his purchase of weather insurance from
The other new weather risk management tool is from eWeatherRisk, which sells weather hedge contracts based on underlying weather indexes. “Our product is not insurance; it is a weather-indexed risk management contract,” says Brian O’Hearne, eWeatherRisk president. But like insurance products, it is designed to minimize the financial impact of poor crop yields resulting from contracted weather events. And like insurance products sold by
In-season payouts are possible because both products are based on the presumption that extreme weather reduces yield, even though it is theoretically possible for a crop to rebound. “Our insurance pays for weather events that have a correlation to yield without having to prove actual yield loss,” explains
“These products are coming on the market now because we can measure weather events better than we could in the past,” says
From his standpoint, Kenady thinks that buying additional protection against poor weather is a no-brainer. For 2012, he has purchased weather insurance on his entire 2,500-acre operation — up from 1,000 acres of coverage last year.
“With federal crop and weather insurance, I am paying
Total Weather Insurance
The Climate Corporation’s flagship product is called
TWI is designed to address the gap between federal crop insurance coverage, which insures up to 85% of historic yields, and actual yield. “We are looking at top-end bushels that ensure the grower’s profit,” Hamlin says.
Although TWI can cover most weather perils from planting through harvest (hail is a notable exception), it’s designed to allow customers to zero in on specific perils if they wish, and buy coverage on as many or as few acres as they want. Complete packages cost
An example TWI policy for corn on an east-central
Policies are automatically customized to a grower’s operation, including crop, location and soil type — with soil type data available in 30-ft. grids across the U.S. Policies precisely define how various stresses are measured using temperatures from the customer’s choice of area weather stations, plus Doppler radar-based rainfall amounts in 2.5-mile grids from the
Throughout the growing season, customers can access local weather data on the company’s website to monitor weather stress measurements versus policy parameters. Policies are sold through insurance agents, who also typically handle
eWeatherRisk contracts
Weather hedges from eWeatherRisk are customized to specific weather perils. They are sold in
“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
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
As with other hedge instruments, customers must meet financial requirements — including a net worth of at least
Copyright: | © 2012 Penton Media |
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