Weather futures come to Canada

The new products will allow investors to buy contracts based on how cold or warm they think a particular month or season will be in those cities.

The scale of measurement — and the basis for the contracts — are indices that track cooling degree days or heating degree days.

For instance, heating degree days reflect the severity of winter cold.

For every degree the mean daily temperature is below 65 F, one heating degree day is accumulated.

So in a 30-day month where the temperature usually averages 42 F, the monthly heating degree day index would be (65 minus 42) times 30, or 690. The index serves as a predictor of how much fuel would be needed in a particular region.

'One of the largest variables'

Each increase or decrease of one degree changes the value of the contract by $20.

Energy companies and utilities are the biggest traders of weather contracts, which were launched by the CME in 1999.

"Weather is one of the largest variables impacting economic activity and business performance," said Felix Carabello, CME's director of alternative investment products.

"CME weather futures contracts provide the marketplace with important hedging tools that allow businesses worldwide, such as construction, energy, retail and transportation companies, to manage their exposure to the elements," he said.

The CME already offers weather-related contracts for 28 cities in the U.S., Europe and Japan. Last year, the notional value of the 867,000 weather contracts traded on the CME amounted to $36 billion US.

The Canadian-based weather contracts will be available Nov. 6.

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