TRADING TIP HURRICANE HEDGES
One of the biggest hazards to farmers in the United States is hurricanes. Because the early autumn is historically the the season for the worst ones., they and can be devastating for both farmers – and for those holding trading positions in the crops.
The lack of adequate insurance against such extreme weather events led to the development last year of hurricane index futures by the Chicago Mercantile Exchange (CME).
The CME’s Hurricane Index has a new means of categorisation using both wind speed and size to quantify a storm’s potential to inflict losses.
There are now a wide range of markets available to the trader looking to hedge weather-dependent commodities such as wheat, orange juice, corn and natural gas. Although they are not yet available as CFDs, they can be useful to reduce your risks.
For example, you can get coverage against a storm of specific size hitting one of seven geographic areas, you can bet on the severity of the season, or you can buy contracts tied to individual storms and trading will continue until settlement, usually within 36 hours of landfall.