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Weather Bias Commodity Risk

Droughts, hurricanes, and other drastic climate changes affect many businesses by either helping or harming their output. Usually, regionalized companies are harmed extensively should a natural disaster occur in their regions of operation. Weather fluctuations and severe climatic changes may hurt a few industries and help others. The overall production in the respective industries will change. Depending on the size of impact, the company’s performance on the stock market may reflect the weather fluctuation.

Companies Or Industries Harmed By Severe Weather

Any regionalized company whose region is afflicted by the weather.
Industries whose resources depend solely on predictable weather, such as farming or grocery stores.
Industries that rely extensively on large-scale transportation, such as oil and shipping industries.
Insurance companies.

Companies Or Industries Helped by Severe Weather

  • Construction industry.
  • Steel, iron, and other industries involved in the production of repair and construction resources.
  • Companies that supply medicals.

Weather And The Stock Market

Climate catastrophes, such as strong hurricanes or tsunamis have immediate effect on the stock market. Investors usually react to such negative news by selling stocks, especially in companies thought to be affected the most. However, one notable exception is hurricane Katrina. While the hurricane was devastating parts of the US, stock markets continued to yield positive results. In the end, the most prudent prediction of how a natural disaster could affect the stock market involves an analysis of how deeply the overall economy of the country is harmed.

Analysts have also observed a direct relationship between weather and the stock market. Stock markets tend to be significantly lower during summer and autumn months than they are during winter and spring. Of course, this is not always the case. Other research maintains that the NYSE index returns tend to be negative during cloudy days. Add in new evidence, even a major report from the Atlanta Federal Reserve, that solar flares cause changes in stock market reactions. There is evidence that this relationship exists due to the malleable psychology of institutional investors, whose block trades move the market.

Who Hurts From Natural Climate Change Shifts And Government Decisions On Global Climate?

Unless companies have a weather risk prediction program and expert consulting into the threats, both short-term and long-range, the following companies can see earnings hit hard:

  • Insurers like Allstate and reinsurers such as Renaissance Reinsurance, Ace Limited, Berkshire Hathaway (BRK) and XL Capital, are highly vulnerable to the damages caused by more powerful natural disasters, as they would bear the brunt of the reconstruction costs.
  • Agriculture companies like ConAgra, DuPont, Monsanto, and Archer Daniels Midland could be hurt by fluctuating oceanic and atmospheric temperatures. Unstable temperatures have the potential to damage any industry that is reliant on agriculture, by killing crops and fish. These companies would be hurt by reductions in food production, which would raise costs and lower profits; any company that uses these agriculture companies as production inputs, from McDonald’s to Tyson Foods to Pepsi, would also be hurt by rising production costs.
  • Increasing water scarcity and declining winter precipitation would hurt water companies like Suez, Vivendi, and RWE, as dwindling supplies would damage productivity, raising costs. Industries that use water as inputs, like steel, iron, paper, petroleum, textile, and chemical, would also be damaged by rising water prices.
  • Companies like Chevron, Exxon Mobil, British Petroleum, Peabody, Massey Energy and Arch Coal could be greatly damaged by a restructuring of the energy market, especially if a government is pro-Global Warming (when a plethora of scientific evidence shows that Global Warming is an incorrect term, and it should be replaced with Climate Change). Energy paradigm shifts mean a major shift away from the established forms of energy. If a government program incorrectly assumes that fossil fuel energy causes too much climate change, then oil and coal would suffer the greatest damages, as shifts away from coal powered electricity production and gas powered vehicles would lead to decreased demand, prices, and profits.

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