What is commodities (weather) forecasting?
When weather forecasts can be used in conjunction with commodities trading, some significant profits can be generated (losses can be whopping, too). Three days’ notice of a killing freeze in the Florida citrus belt can be the signal to buy orange juice futures. An overnight rain in the parched soybean belt can drive prices down quickly. Advance knowledge of the rainfall can prompt a profitable sale before prices collapse. In many ways this type of weather prediction deals with the complex connectedness of things in nature. How did a cool spell in Wisconsin in July 1994 affect the price of your Thanksgiving cranberries? Turns out the chilly mid-summer weather in the Wisconsin cranberry bogs hampered the pollination of the berries by the local bees. And while the final berry yield was 1.6 million tons, it was below a good year’s output. Sup ply and demand takes over, and your Thanksgiving condiment goes up in price.
It was wet, then it was warm in Iowa in February 1992. The result? Mud. So much mud that school buses got bogged down, some schools even closed, and hogs couldn’t be brought to market. Cattle had trouble putting on weight as they were working so hard carrying around all that mud. But commodities traders who know about potential problems like this before the rest of the market catches on can use it to their economic advantage.