weather and the economy

Jun 12, 2004
Athens, OH
THIS thread discusses accu-weather's rather detailed although perhaps without basis hurrican forecast. It mentions the effect of predicted hurricanes on the oil business in and around the Gulf of Mexico.

Well it got me thinking about weather and the economy. Does anyone know any meteorologists that are employed in the financial sector ? Do they hire climatologists or meteorologists ? How does all that work ?

Just curious about that aspect of the weather.

Examples would be insurance companies. They need to forecast risk and make reasonable predictions over the long term. Crop insurance is more near term. How do they determine what to charge to insure an acre of soybeans against weather related yield problems. How often do they change the cost ? Now that moisture is a problem for parts of the plains have crop insurance prices risen ? How far in advance do farmers purchase that stuff ?

Other examples would be commodities trading. Hurricanes that destroy many homes lead to spikes in the cost of lumber, etc, etc.

Just curious about that whole intersection of weather and the economy.

Maybe I can use my weather experience to leverage the futures market for soy and finance my next chaser vacation with the profits ;)

Mostly I am curious about where they get the forecasts that they need both near and long term.
There are folks on this board who are employed by private weather firms (Justin Turcotte, Jim Bishop, etc). Meteorologists are employed by companies in many different industries -- energy, insurance, transportation (shipping companies, airlines, state "department of transportation"s, railroad companies), retailers, etc.

One of the more recent applications has been in the retail sector. Many items sell heavily under certain weather conditions. For example, snowblower sales may increase a lot during heavy snowfalls. If a company knows that a series of heavy snowfalls appear likely, they can increase their advertising (which costs $) in hopes of increasing their sales. In addition to advertising, stock is also heavily affected by the weather.

Transportation companies also employ meteorologists or use meteorological products. For example, a state department of transportation may need to decide when to stay laying down their anti-icing spray. It is a waste of $ to spray the roads if the surface road temperatures will stay a few days or more above freezing. However, it's also important to make sure it is layed down before the road freezes over...

Others on ST are employeed by private firms, and I'm sure others know more about other meteorological applications than I do.
The weather also heavily affects the stock and commodity markets. Remember how high natural gas soared (to like $14) this past fall, when the forecast from the NWS indicated that the winter would be colder than normal across portions of the country, including the northeaster. Lo and behold, the forecast was wrong, the winter was relatively warm (on the whole, and record warm in areas) across much of the country, and natural gas futures dropped significantly. I'm sure a lot of people lost quite a bit of money on that one...[/b]

Actually, both winter outlooks from the fall from CPC had much of the country forecast for above normal temperatures with "equal chances" forecast for the northeast. Given the upward trend in winter temperatures over the U.S. for the last 30 years, that itself is a primary factor in the winter temperature forecast and there has to be a pretty strong signal in the other indicators for a forecast to have confidence in below normal temperatures.

Forecast from the mid-October winter outlook from CPC...
"The 2005-2006 U.S. Winter Outlook calls for warmer-than-normal temperatures across much of the central and western United States, including Alaska and Hawaii. The Midwest, the Southern Californian coast and the East Coast have equal chances of warmer, cooler, or near-normal temperatures this winter. "

Forecast from the mid-November winter outlook from CPC...
"The update calls for warmer-than-average temperatures across much of central and western United States, including Hawaii, the Great Plains and Midwest. The Northeast, East Coast, Gulf Coast states and Southern California coast are in equal chances. "

I apologize for that mistake. I'm not sure where I got that, but I was reasonably confident that the CPC had the Northeast in a "colder than normal" outlook for this past winter. Looking through the outlooks, however, I see this is not the case. Indeed, the Northeast was under 'equal chances' in terms of temperature anomaly. I've removed my comments from the post I made before yours so as to remove confusion. The original comment was not intended as a critique of the forecast, as it just showed the unpredictability and potential impacts on the market.
As an undergrad, I worked for a private sector company for a few years. One of our products was weather forensics products.... specifically for hail. While this is by no doubt an inexact science, even general information of where hail producing thunderstorms passed is sought by insurance companies... fraud is pretty common. Here's a typical scenario:

Resident Joe moves into new house. Next month, large hail rips up his roof. While it's in bad shape, the roof keeps water out for now. The following month, Joe finally gets insurance that covers hail damage. Several months later, they get hit by a thunderstorm and he now claims hail damage.

FYI: I also processed a few auto claims.

No problem Jeff. I think I do recall someone forecasting cooler than the previous winter, even if not below normal. So perhaps energy futures went up on that. As long as the cold 1970s winters are part of the 30 year climatology, the trend part of the forecast will be a big factor in what is seen on the winter outlooks.
A rapidly growing sector involves the creation of weather-derived financial instruments for hedging and risk managment. The Chicago Mercantile Exchange (CME) actually offers futures, options, etc. contracts on such things as Heating Degree Days, Cooling Degree Days, Frost Days, Snowfall for a number of major cities across the United States and Europe.

See this link: CME Weather-Based Instruments

Other large growth areas in the use of weather information in financial sectors include

Mutual Funds:
Chicago Tribune - "A Portfolio for all Seasons"

Retail-Industry Based Consultant Companies:
Planalytics, Inc.

Reinsurance and Risk Modeling:
Insurers Thrive Again

Big business is finally realizing after recent weather catastrophies and events that value-added meteorological information can help them save billions in $$$. Should be interesting to see how the rest of the severe weather and hurricane seasons play out across North America and the impact that will be felt in the economy.