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Weather Futures and Options - organized market versus “over-the- counter” market

Weather Futures and Options - organized market versus “over-the- counter” market. MCX Rainfall Indices - RAINDEX. The indices records rainfall at (1) Mumbai (Colaba) & (2) Indore

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Weather Futures and Options - organized market versus “over-the- counter” market

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  1. Weather Futures and Options- organized market versus “over-the- counter” market

  2. MCX Rainfall Indices - RAINDEX • The indices records rainfall at (1) Mumbai (Colaba) & (2) Indore • The index is computed based on historical annual cumulative rainfall and adjusted with net surplus or deficit of actual cumulative rainfall as of that date. • Values are posted daily on the website during the South-West Monsoon Season (June to October) of every year.

  3. Performance of RAINDEX (MUMBAI & INDORE) during last monsoon season

  4. Relationship between rainfall & yield of soya bean in last 20 years

  5. Rainfall & Soya Bean prices @ Indore • Important Notes: • When Rain Index (Raindex-Indore) moved above historical average(950 mm) hinting a possible good monsoon season, correspondingly the prices of soya bean can be seen at lower levels.

  6. Rainfall Expectations & Price Volatility • Important Notes: • Sharp positive rise in indices hints a good monsoon season. When this is the case, price volatility in soya kept low. • When there is negative movement in index, price volatility in soya bean is high.

  7. Who can be the users of weather risk management contracts? • Farmers • Banks/Financial Institutions • Insurance companies • Traders • Agro-input companies • Hydro-power companies • Food processing companies • FMCG, etc.

  8. Exchange and OTC market will supplement each other Exchange: provides reference contracts which attract a large user base, from hedgers and speculators; these contracts will form part of the risk management instruments available to OTC providers. OTC market: provide tailored products to those who are exposed to specific risks; and provide services in terms of aggregating demand. OTC market can also use the exchange clearing house to help it with credit risk management.

  9. Companies exposed to “macro” weather risks OTC providers Speculators Exchange Corporates exposed to specific risks Portfolio investors Clearing house Hydro-power plants Credit risk mitigation Banks Seed companies F a r m e r s

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