Some Australian Farmers are beating the drought with Weather Certificates

Jonathan Barratt

December 18, 2019

For some Australian Farmers it is the third winter crop in a row that has failed, for others it’s the second. A small handful however, are beating this drought. A dry spring with already prevailing drought conditions across Australia will see the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) cut its final estimates for the Australian wheat production for 2019. It is widely anticipated that ABARES will cut its estimates to below last year’s 17.2 million tonnes, which incidentally, was the smallest crop since 2007/08.

The outlook remains bleak; however, some smart farmers and corporations are seeing how using a simple Dry Season Weather Certificate ( which is an Index Insurance/Derivative) early on in the season is now bringing a little bit of Christmas joy. Payouts from Weather Certificates and Index Insurance covers will make it to them prior to Christmas.

2019 has been a watershed year for the Weather Certificate and Index Insurance/Derivative industry with early adopters using them to their advantage to securing production risk in dry conditions. As the country remains firmly entrenched in the drought, dry season and emergence covers have and are continuing to offer life lines to many drought-stricken farmers. Banking some peace of mind by having some cover in place is just good farming practice. Transferring adverse weather risk from their balance sheet and into the risk transfer market using Weather Certificates makes for a good farming practise, especially, as we head into an uncertain summer. Early adopter James Gall, sums it up nicely.

“We have used Weather Certificates for the past two seasons and have found them a great peace of mind in managing our production risk”.

Jonathan Barratt CEO of CelsiusPro, Australia’s largest Weather Certificate provider, says “It has been an incredible year, more farmers are wising up to using Weather Certificates than ever before and with reinsurance providers still happy to provide liquidity in the worst drought in history, the sustainability of the industry remains positive”.  Weather Certificates are simple and transparent contracts, although the focus is for the farmers the generic nature of the products enables other industry stakeholders such as hauling and harvesting contractors to use them to offset the effects of adverse weather. Barratt says, “once a Farmer or user has an understanding on how they operate they can be easily implemented to hedge any business where the weather plays a huge impact on profitability”.

The use of Weather Certificates and Index based insurance/derivative contracts is gaining momentum in Australia. Grain Corp has just been paid $57.3 million in a 10yr index insurance strategy they implemented earlier in the year.  The cover was designed as a hedge against dry conditions and the shortage of grain. Barratt says “That although this was a deal completed at the top end of town, we have many growers that have received payouts as a result of dry conditions this year, it is good to see the covers doing what they are meant to do and that is transfer weather risk aware from the Farmer and into the risk transfer market”.

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