AgriRisk was getting increasingly concerned about the dry conditions prevailing across most cereal crop growing regions in the eastern states. A lack of rainfall during last six months had left most growers with poor soil moisture conditions which would have impacted on their ability to plant a winter cereal crop.
To assist, AgriRisk was in the process of designing a rainfall derivative to help growers manage this risk should the dry conditions continue up to the planting window. Of course the recent rainfall has washed away the need for that derivative which is great news for growers.
AgriRisk sees merit in weather derivatives when they are used to manage against widespread, longer term adverse weather conditions, such as a lack of rainfall over an extended period (4 weeks +). This is because “basis” risk is reduced. Basis risk is the difference between the weather parameters measured at the local Met Station and what is observed on farm. Generally the closer you are to the Met Station, the lower the basis risk and vice versa. But when the derivative is structured around a trend rather than an individual event the basis risk is reduced.
The AgriRisk team will continue to monitor situations where we believe derivatives might be of assistance to you in managing your risk exposures and send you details accordingly. In the meantime, if you’re interested in these types of products, please contact John van der Vegt.