managing risk in a changing marketplace… brian o’hearne, president and ceo
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Managing Risk in a Changing Marketplace… Brian O’Hearne, President and CEO. February 17-19 Orlando. What is a Weather Hedge?. A risk contract that provides any business a method to offset financial risk from adverse weather events. - PowerPoint PPT PresentationTRANSCRIPT
Managing Risk in a Changing Marketplace…Brian O’Hearne, President and CEO
February 17-19 Orlando
What is a Weather Hedge?
• A risk contract that provides any business a method to offset financial risk from adverse weather events.
• Weather contracts are used extensively by large corporations to manage weather risk. eWeatherRisk brings the same program to all farms and businesses.
• There is no adjuster - it pays when the chosen weather event happens.
• Weather contracts provide previously unavailable protection to regional agribusinesses.
• Weather contracts can be used for virtually any weather related risk as a stand-alone solution or combination with other cover opportunities.
• Or… any business that has weather risk.
Bottom line: Provides a new risk management tool.
• Every facet of the US economy uses weather hedging.
• Energy (Utilities) is the largest sector, followed closely by Agribusiness.• Chances are your local power company
hedges weather risk to offset excess heat or cold in order to keep your bill the same and hedge their profit.
• Most agri-processors hedge against weather related cost increases to their supplies. Growers hedge weather to protect profits from excess costs and revenue losses.
eWeatherRisk’s program helps both.
Who buys weather risk?
Weather Contracts Purchased
Why?• Protect profit from adverse weather.• Stabilize earnings• Cover risk to added costs from weather
related events such as freeze, drought, heat or excess rainfall
Who is eWeatherRisk?
• We are a weather risk platform that provides real time risk management solutions as a stand-alone strategy or to compliment crop insurance.
• eWeatherRisk proprietary weather data comprises over 6,000 ground based US weather stations.
• The ability to customize transactions to specific weather risks helps customers offset weather risk with a variety of industry proven solutions.
• Multiple risks, dates and structures can be used, all simultaneously and all independent.
• eWeatherRisk is backed by MunichRe, a $17B AA- Standard and Poor’s rated international and publicly held reinsurer
How can Ethanol benefit?
• Local prices can be hedged when there is poor growing conditions or weather events that reduce yield and increase local price.
• Input volumes can be hedged to alleviate costs associated with transportation, spot prices and delivery schedule issues.
• CME futures positions can be hedged with regional, large area weather risk on the crop.
• Risks associated with actual production can be hedged; i.e., excessive heat or excessive cold, drought, excess rain.
• Plant operating efficiencies can be greatly reduced in excessively hot conditions.
RapidContract makes it fast and simple to transact.
Weather Station Name EXAMPLE WS EXAMPLE WSContract Number 11522 11523Contract Value $100,000 $100,000Start Date 6/1/13 6/1/13End Date 8/31/13 8/31/13
Threshold Temperature 86 86Average Units 90.83 90.83Maximum Degree Units Over Threshold 373 373Damage Begins at Unit 109.00 100.00Total Damage at Unit 373.00 373.00
Payout per degree unit $379 $366
Rate 18.14% 18.57%Price $18,140 $18,570Pre-Purchase Discount 16.14% 16.57%
$16,140 $16,570
1/14/2013 20% over Average 10% over Average
Illinois and Iowa Excess Heat
Excessive HeatIllinois, Iowa
Contract Number 1014707 1014662
Contract Value $10,000,000 $10,000,000
Start Date 5/15/14 6/1/14End Date 8/15/14 8/31/14
Daily High Temperature Threshold (
⁰
F) 86 86
Average Heat Units* in Period 138 155Maximum Heat Units in Period 407 438Payment Begins Above 153 186Contract Value Paid At 407 438
Payout per Heat Unit $39,370 $39,683
Rate 21.50% 19.04%Price $2,150,000 $1,904,000
Weather Stations
Cedar Rapids Muni ApChicago-Rockford Intl Ap
2/10/14
Quote is Subject to Change
Sioux City Gateway ApSpringfield Capital Ap
Illinois and Iowa Excess Precipitation
Excessive Precipitation
Iowa, Illinois
Contract Number 1015333 1015334
Contract Value $10,000,000 $10,000,000
Start Date 4/1/14 4/15/14End Date 5/15/14 5/31/14
Highest Precipitation in Period 9.42 6.01Average Precipitation in Period 5.34 11.24Payment Begins Above 6.41 7.21Contract Value Paid At 9.66 11.52
Payout per 1/10 Inch $307,692 $232,019
Rate 17.88% 19.50%Price $1,787,500 $1,950,000
Weather Stations
Payment begins if cumulative precipitation in period is more than 20% above Average Precipitation in
Period
Cedar Rapids Muni ApChicago-Rockford Intl Ap
Sioux City Gateway ApSpringfield Capital Ap
Greenville Ohio Excess Heat
Excessive Heat
OH
Weather StationContract Number 1015729 1015725
Contract Value $100,000 $100,000
Start Date 6/1/14 7/1/14End Date 8/31/14 7/21/14
Daily High Temperature Threshold (
⁰
F) 86 86
Average Heat Units* in Period 99 31Maximum Heat Units in Period 385 141Payment Begins Above 119 37
Full Contract Value Paid At 395 145
Payout per Heat Unit $362 $926
Rate 17.63% 21.25%Price $17,630 $21,250
Payment begins when number of heat units in period is more than 10% above Average Heat Units in Period, Contract Value is paid when number of heat units in period is more than 0%
Above Maximum Heat Units in Period
Greenville Wtp
Greenville Ohio Excess Precipitation at Planting
Excessive Precipitation
OH and IN
Weather Station(s) Dayton International Airport
Richmond Wtr WksFarmland 5 NNW
Contract Number 611812 1015724
Contract Value $100,000 $100,000
Start Date 4/10/14 4/10/14End Date 5/10/14 5/10/14Highest Precipitation in Period 9.11 10.13Average Precipitation in Period 3.80 3.98Payment Begins Above 4.56 4.78Full Contract Value Paid At 9.34 10.38
Payout per 1/10 Inch $2,092 $1,786
Rate 20.28% 19.38%Price $20,280 $19,380
Payment begins if cumulative precipitation in period is more than 20% above Average Precipitation in Period, Contract Value is
paid if cumulative precipitation in period is greater than or equal to 0% Above Highest Precipitation in Period
Greenville Wtp
Features and Benefits…
Weather risk can be effectively managed.
Benefits
• Adaptable - The eWeatherRisk program is built by our customers!
• Cost-effective - each weather solution is customized to the customer
• Hassle-Free - No proof of loss required.
• Transparent - weather data available daily via the web or agent
• Protects: • input costs, • profitability, • forward contract delivery
obligation• allows for more profitable
marketing decisions
Features
• Coverage - 6,000 ground-based US weather stations
• Flexibility - Ability to customize transactions to specific weather risks
• Timeliness - Settlement can be executed within days.
• Availability - No sales closing period and advance purchase discounts are available.
• Security - eWeatherRisk is backed by a AA- S&P-rated international reinsurer.
I've been involved with eWeatherRisk almost since the day they opened their doors on a national, regional and local level. The Andersons has used eWeatherRisk for our weather risk management because the weather stations work, their pricing was reasonable and specific to the risk, they are fully transparent and payment was made as promised.
Our weather risk spans many different areas yet have one common theme…offsetting increased costs and lost profits due to adverse weather.
This will be our 4th year buying weather protection from them and we have always experienced tremendous agent and customer support. We believe you should have the same level of comfort The Andersons have experienced and we can't emphasize enough the importance of weather risk management to weather sensitive businesses.
Mike MockSenior Risk ManagerThe Andersons, Inc.
It’s time to consider a weather contract for your operation.
Our Weather Risk Program:
Temperature
• Heat• Cold
Precipitation
• Excessive Precipitation• Insufficient Precipitation• Highest Daily Rainfall in Period
A full compliment of standard and hybrid weather risk instruments are available for these risks.
The eWeatherRisk Solution…
With eWeatherRisk, your weather risk is dynamically managed. With nearly 65 years of weather data from over 6,000 ground-based weather stations in the U.S. combined with unparalleled weather risk contract flexibility, pricing and contract delivery in real time. eWeatherRisk's weather solutions are backed by New/Re S&P rated AA-, a subsidiary of Munich Re the world’s largest reinsurer.
Brian O’Hearne | President & CEO | eWeatherRisk | 5251 West 116th Place, Suite 200Leawood, Kansas 66211| 800 603 3605 | [email protected]
Jim Jubb | Vice President – Marketing | eWeatherRisk | 5251 West 116th Place, Suite 200Leawood, Kansas 66211| | 800 603 3605 | [email protected]
February 17-19 Orlando
Managing Risk in a Changing Marketplace…Brian O’Hearne, President and CEO