CME expands weather trading

The Chicago Mercantile Exchange (CME) will add weather derivatives contracts based on data from seven additional cities on June 20. From then, the exchange will list monthly and seasonal contracts based on weather data from 29 cities in Europe, Japan and the USA.

The new additions are Baltimore, Detroit and Salt Lake City in the US; and Barcelona, Essen, Madrid and Rome in Europe. The US contracts will include heating degree days and cooling degree days for monthly and seasonal futures and options, priced in dollars; the European listings will cover heating degree days and cumulative average temperatures, priced in pounds sterling. The contracts will be identical in detail to existing weather contracts.

Futures contracts will trade on the CME electronic trading platform from 1700 to 1515 local time (GMT -5/-6 hours). Options will be traded on the floor from 0830 to 1515 local time.

The CME said weather trading volumes are growing rapidly, with 307,000 contracts traded so far in 2005, compared with 123,000 for the whole of 2004. “The CME weather futures contracts provide the marketplace with important hedging tools that allow businesses worldwide to manage something that has always seemed unmanageable. If organisations today are not hedging the weather they are speculating,” said Rick Redding, managing director of products and services at the CME.