BUENOS AIRES – Three companies joined forces Monday in Argentina to develop futures contract on the weather, a new financial tool that will allow agricultural producers to cover themselves against the risk of drought.
The development of these contracts will be undertaken as per an agreement signed Monday among Rofex – the futures exchange in the Argentine city of Rosario – and the S4 Agtech and Argentina Clearing companies.
According to a communique released by Rofex, using the so-called IndexS4, agricultural producers will be able to weigh the risk of drought that could devastate their harvests and, thus, hedge themselves against adverse weather events.
In addition, the firm said that the electronic market will provide “transactional procedures that are much more efficient than traditional ones, adding value to agricultural producers and offering the possibility of incorporating small producers not reached by the traditional risk transfer programs.”
The IndexS4 was developed by the S4 technology firm using satellite databases and employing statistics and algorithms.
If a drought negatively impacts production for a given harvest, the index falls below the trigger price stipulated in the contract and an automatic payment is provided to the agricultural producer.