STOCK MARKET WATCH -- Wednesday, 26 December 2012

[Demeter]

20. Who Needs Snowfall Futures?

http://openmarkets.cmegroup.com/4977/who-needs-snowfall-futures

Some may remember the “Snowmageddon” of January 2010. The East and Midwest were pounded by record snowfall, and Washington D.C., the epicenter of the severe weather, was shut down for days. Each snow day cost taxpayers $100 million in lost productivity from federal workers. The Chicago “Snowpocolypse” in 2011 had a similar impact. Weather events are expensive. The $100 million estimate didn’t factor in accidents, lost sales, as well as home, building and infrastructure repairs related to the storms. And then there were the airlines. Based on totals reported from the airlines, some 7,000 flights were cancelled the first few days of the 2010 storm.

Snowfall isn’t always something that is undesirable though. In January, the Federal Reserve noted in its Beige Book report that an unexpected lack of snowfall was dampening tourism in the Ninth District – which consists of Minnesota, Montana, North and South Dakota. A lack of snow and surprisingly warm weather stymied snowmobiling, ice fishing, and skiing in many areas. Tourism officials in Minnesota noted that the lack of snow was affecting businesses that cater to winter recreation. Low snowfall in Yellowstone National Park was affecting nearby resorts and businesses that offer winter tours of the park on snowmobiles and in snow coaches.

In fact, according to the National Ski Areas Association (NSAA) The 2011/12 season was also marked by the lowest national average resort snowfall since 1991/92, the second‐lowest snowfall in 21 years of available data. According to the survey, 50 percent of responding ski areas opened late for the season, and 48 percent closed early. Every region experienced a decrease in overall days of operation, with particularly significant declines in the Southeast, down 13.9 percent, the Northeast was down 13 percent, the Pacific Southwest was down 11.7 percent, and the Midwest was down 10.6 percent. Accompanying this was the fact that U.S. ski areas tallied an estimated 51 million skier and snowboarder visits during the 2011/12 season. This represented the most challenging season in over two decades, when 50.8 million visits were recorded in the 1991/92 season, according to a preliminary 2011/12 Kottke End of Season survey.

Snowfall futures could be seen as the financial equivalent to a ski resort’s artificial snow making efforts. The contracts can be used when traditional insurance products may not be available, or when focusing on a busy period for a winter recreation company, when insufficient snowfall can cut into profits...