Betting On The Weather

The weather is never predictable. But now, forecasts are being used for trading on the futures market. So, while people are trying to beat the heat by gulping down all those bottled drinks, some companies are cashing in on the dog days of summer.

At Enron Corporation, you can find a handful of employees staring at storm patterns and checking out temperatures nationwide on their computer monitors. It's not a hobby, and they're not meteorologists. But they are trying to predict the weather.

"It's never before has anyone ever been actually able to protect themselves from weather to this extent," says Lynda Clemmons, director of what is called "weather hedging."

Weather hedging is a new way for companies that make more money during hot or cold weather to protect their profits when the temperatures take a turn in the other direction.

"The example you can think about is in the hot summer time: Sports-drink sales go way up. Sales of soup probably go way down," Clemmons says. "If you have a mild summer though, you might not have the sales of sports drinks you would typically expect."

But thanks to what Clemmons calls a "financial product," companies can protect themselves from losses due to the unpredictable weather.

Clemmons says: "So I would do the charts based on historical conditions and come up with a price for the product. They pay for the product with what we call a premium, much like insurance. Then in return, if the weather ended up being lower than 90-degrees, then they would get a pay out from me."

If it was hotter, the sports drink company's sales would boom. And finances would not be a concern.

Weather derivatives have been traded for just a few months. But experts say the weather market is ready to take off and could reach $300 billion annually.

More and more companies are expected to jump on board. Companies like theme parks and golf courses hedging against excessive summer rainfall.

Reported by Jeff McShan