Eh, from what I can gather of it, it's designed to help prevent people from losing money when their businesses fluctuate based on the weather, as might be the case with farmers and even retailers. But, the exact logistics of it... that I can't wrap my brain around. Obviously, there is benefit to the traders i.e. Wall Street, or they wouldn't bother trading, but I do believe it could possibly have more noble roots. It would be fabulous if someone with a financial background could break it apart for us- we could both be right. I really don't know.
It kinda seemed that's what it's selling point is but as I was trying to wrap my head around it, it seemed fishy and weird. Like it's trying to say weather is actually a quantifiable commodity that can somehow, or at least rightfully, traded and invested in. Seems like an excuse for stock traders. Like you said the logistics of it are to convoluted to be up and up and tangible.
I found it slightly amusing that your post on the "home" page ended with that I can't wrap my bra.... And of course, the around that immediately came to mind.
I though you might have come up with a new, interesting expression that I had not heard...until possibly now..
Thank you. I didn't see that page and it does explain it better. I still think I need a finance degree to really get into it, but I understand the general concept better now.
Crop insurance in America can trace it roots all the way back to 1880, when private insurance companies first sold policies to protect farmers against the effects of hail storms. These Crop-Hail policies are still sold today by crop insurance companies and are regulated by individual state insurance departments. In 2016, farmers spent $981 million on Crop-Hail insurance to protect $36 billion worth of crops.
That's insurance. This is made up investments and saying weather is a a commodity that can be invested. I read it and it's basically a roulette wheel with weather patterns. This is made up.
Insurance is a means of protection from financial loss. The crop is the commodity. The weather is not.
People generally don't provide services if they are not compensated for doing so. If farmers want to risk not insuring their crops, they don't have to do so. Some are capable of underwriting their own risk. Others are glad to spend a small amount to assure they will not lose their farm if their crop is destroyed.
I don't see that "Wall Street" has anything to do with individuals getting crop insurance.
It states clearly inboth articles it's not crop insurance. The way it explains it it is basically saying you put your money on red(hotter weather or whatever they called it) or black( colder weather or whatever they called it). I know I'm simplifying it immensely but it basically sounds like a red or black gamble.
It's marketed as a saving grace for those industries/municipalities greatly affected by weather in situations that would not be covered by insurance. A struggling city like Detroit might be put into dire financial straights if it is hit with a particularly hard winter, say, but can hedge that if they place the correct bet in weather derivatives on the CME.
Theoretically this could benefit any entity greatly affected by weather: skiing, snowplowing, fall color tours, school districts, colleges, cities, etc. The bottom line is that it is a bet, a guess...an educated guess perhaps, but still a gamble. Other investors in weather derivatives are doing the same thing they do with stock options, placing a bet.
Benedict Arnold 