Making money in the markets with medium and long range forecasts

[QVectorman]

I have been reading snippets of articles around the web lately (WSJ, NYT, Bloomburg, etc) of gentlemen who have been saying if you know how to forecast weather there is no reason you should be broke. That our knowledge is easily applicable to forecasting futures markets such as grain, oil and energy and coming out ahead. I even remember a prof in college saying the same thing over ten years ago, that forecasting knowledge has lead several forecasters to financial fortune on Wall Street. This all makes perfect sense on paper, but I have asked serveral colleagues and two friends working in the energy trading sector if they have used their knowledge to play the markets and everyone has said no.

Has anyone here figured out what these guys are talking about? Because I have been directed to Hedge funds and most blocks go for a minimum of $10,000. I don't think a majority of us can afford to invest $10k on one forecast.

Just want to get discussion going (since there are a few other Energy mets here) on how, or if it is even possible, or if someone is already doing it for mets to make money with our forecasting knowledge playing the futures markets for less than a large chunk of money or maybe recommend some other cheaper weather derived commodities/moves forecasters are investing in.

[NorEaster27]

Weather is only a small part of trading energy or commodity futures, in the current environment its even smaller.

[usedtobe]

I have been reading snippets of articles around the web lately (WSJ, NYT, Bloomburg, etc) of gentlemen who have been saying if you know how to forecast weather there is no reason you should be broke. That our knowledge is easily applicable to forecasting futures markets such as grain, oil and energy and coming out ahead. I even remember a prof in college saying the same thing over ten years ago, that forecasting knowledge has lead several forecasters to financial fortune on Wall Street. This all makes perfect sense on paper, but I have asked serveral colleagues and two friends working in the energy trading sector if they have used their knowledge to play the markets and everyone has said no.

Has anyone here figured out what these guys are talking about? Because I have been directed to Hedge funds and most blocks go for a minimum of $10,000. I don't think a majority of us can afford to invest $10k on one forecast.

Just want to get discussion going (since there are a few other Energy mets here) on how, or if it is even possible, or if someone is already doing it for mets to make money with our forecasting knowledge playing the futures markets for less than a large chunk of money or maybe recommend some other cheaper weather derived commodities/moves forecasters are investing in.

I had a friend who was a very good medium range to long range forecaster who started his own fund. He ended up having trouble competing with the big boys, not because he couldn't forecast but they managed to manipulate the market long enough to hurt his position. He actually filed a suit but lost. I don't know the particulars but that convinced me never to try it. Too much risk and there are too many other factors than can impact the commodities market.

[Ginx snewx]

Stay far away , its a shell game for the rich manipulated to the max.

[blazess556]

I am taking an Energy, Business and Finance class at Penn State and we are currently in a trading exercise where we are speculators in the Brent crude oil futures market. We were given 50 million dollars and told to make a profit buying and selling December 2011 futures. I know this is just a fake exercise and we are only trading futures a few months out, but it has made me realize that it is much harder to make profits than it looks.

In addition, my professor has always stressed to us that this is not a place for individual speculators. He states that there is no way to compete with the big companies and hedge funds who have way more manpower and resources, and thus will overpower and dominate the individuals in the markets. Plus, there are many more factors that come into play than just the weather.

[QVectorman]

I am taking an EBF class at Penn State and we are currently in a trading exercise where we are speculators in the Brent crude oil futures market. We were given 50 million dollars and told to make a profit.

However, my professor has always stressed to us that this is not a place for individual speculators. He states that there is no way to compete with the big companies and hedge funds who have way more manpower and resources, and thus will overpower and dominate the individuals in the markets. Plus, there are many more factors that come into play than just the weather.

I was looking at the course catalog the other day just to see what classes they had added to the met program since the late 90's when I was there and I was salivating at the mouth looking at that course. Glad you chimed in. Would love to hear a few more tid bits of info you end up learning or have learned during the class. What books does the class use? Or is it a just one of those that you have to buy a packet for the class with Knight's or who ever's notes?

[bigtenfan]

This is actually nothing new. I remember back in the winter of 1976/77 there were stories about certain meteorologists at Accuweather making a killing on orange juice futures by being able to predict well in advance the Florida hard freeze that winter. At the time there was some debate as to whether that should be considered a form of insider trading or not but it was determined(and rightfully so) that it was based on an opinion of future events and not any insider knowledge.

[VAwxman]

The energy field remains a great place to be, but you need to try to get on with one of the funds themselves rather than try it on your own. You will still be able to make a good deal of money, and under some circumstances can even get into a little trading yourself with the firm. As others have said, doing it on your own will probably result in you getting run over a lot, even if you wind up having the right forecast, as you just will not be able to come close to resisting the "bullying" by the big boys. And also, again as others have said, a lot more than weather goes into determining energy prices, but having said that, there are several plays over the course of the year that are almost solely attributed to weather, so you have to pick your spots and not be overly greedy.

[Shawn]

It's a super novel idea if you are an expert forecaster who could predict a catastrophe/condition to effect oil prices or power outages.. but overall anyone who gets "rich" on this technique would be.. basically playing poker. 70% luck, 30% skill.

[QVectorman]

So is the hard freeze story about the orange crop actual or is it still a "rumor" circulating that some "guys" from accuweather did that trade?

[VAwxman]

So is the hard freeze story about the orange crop actual or is it still a "rumor" circulating that some "guys" from accuweather did that trade?

I put in three years at AccuWx and never heard that during my time there, so for me it is still in "rumor" status.

[mitchnick]

I put in three over-paid, under-worked, non-confrontational, years at AccuWx and never heard that during my time there, so for me it is still in "rumor" status.

fixed

[hurricaneschwartz]

I worked at AccuWeather from 1972-74, and there was a famous incident (don't remember the specific time) when Joel came to us and asked if we wanted to go in on orange futures, since we saw a big freeze coming about a week ahead of time. We were ahead of the market (not too many 1 week forecasts back then), and Joel supposedly made a LOT of money from it.

In 1980, my partner and I in Atlanta were approached by a private investment company and wanted specific forecasts during the great drought. We were paid a certain amount each week, and never knew whether our forecasts helped or not. Years later, I was contacted by a lawyer representing this company. They were being sued by competitors for having "inside information" that helped them. Their defense was that they simply had better forecasts. When I asked the lawyer how much the company made during this individual summer, he replied: "A fortune."

Glenn

[blazess556]

I was looking at the course catalog the other day just to see what classes they had added to the met program since the late 90's when I was there and I was salivating at the mouth looking at that course. Glad you chimed in. Would love to hear a few more tid bits of info you end up learning or have learned during the class. What books does the class use? Or is it a just one of those that you have to buy a packet for the class with Knight's or who ever's notes?

The class is EBF 301 which is taught by Professor Joseph Goehring. This class is required for all meteorology majors who are in the Weather Risk Management Option. Currently, we have been studying the basics of cash and futures markets as well as the many different types of financial derivatives. We also have learned some of the techniques/methods that hedgers, speculators, and arbitragers use to make a profits (ie. ETF's, swaps, forward contracts, cash and carry, reverse cash and carry, cross-hedging.) .

The book that we use for the class is Options, Futures, and Other Derivatives, Eighth Edition by John C. Hull. I do know there is a Weather Risk Class with Prof. Knight but I have not taken the class yet because I am only a junior.

[QVectorman]

I worked at AccuWeather from 1972-74, and there was a famous incident (don't remember the specific time) when Joel came to us and asked if we wanted to go in on orange futures, since we saw a big freeze coming about a week ahead of time. We were ahead of the market (not too many 1 week forecasts back then), and Joel supposedly made a LOT of money from it.

In 1980, my partner and I in Atlanta were approached by a private investment company and wanted specific forecasts during the great drought. We were paid a certain amount each week, and never knew whether our forecasts helped or not. Years later, I was contacted by a lawyer representing this company. They were being sued by competitors for having "inside information" that helped them. Their defense was that they simply had better forecasts. When I asked the lawyer how much the company made during this individual summer, he replied: "A fortune."

Glenn

Thanks Glenn, so are moves like those possible today on 2 week forecasts or 3 week or have the agricultural markets become so big that a middle class individual can not afford to dabble in them or are the forecasts from private institutions for such events usually hours/days ahead of an individual's forecast that a forecaster will not be able to buy futures before the CME traders get ahold of the info?

[QVectorman]

The class is EBF 301 which is taught by Professor Joseph Goehring. This class is required for all meteorology majors who are in the Weather Risk Management Option. Currently, we have been studying the basics of cash and futures markets as well as the many different types of financial derivatives. We also have learned some of the techniques/methods that hedgers, speculators, and arbitragers use to make a profits (ie. ETF's, swaps, forward contracts, cash and carry, reverse cash and carry, cross-hedging.) .

The book that we use for the class is Options, Futures, and Other Derivatives, Eighth Edition by John C. Hull. I do know there is a Weather Risk Class with Prof. Knight but I have not taken the class yet because I am only a junior.

Thanks I'll be checking out the book.

[valkhorn]

Weather has less to do with the market. Social psychology has much more to do with the market and pricing of shares. That's why it's so much harder to predict. Many times stock prices don't follow how economical or prosperous a company is, but more over the popularity of that company, whether it just had one bad day, or whether a few speculators wrote a scathing blog article about it. Over the years, earnings reports have had less and less to do with prices, too.

With all the speculation and hedging going on right now, simple decisions aren't the way to go. That's why they invented derivatives.

[N. OF PIKE]

I worked at AccuWeather from 1972-74, and there was a famous incident (don't remember the specific time) when Joel came to us and asked if we wanted to go in on orange futures, since we saw a big freeze coming about a week ahead of time. We were ahead of the market (not too many 1 week forecasts back then), and Joel supposedly made a LOT of money from it.

In 1980, my partner and I in Atlanta were approached by a private investment company and wanted specific forecasts during the great drought. We were paid a certain amount each week, and never knew whether our forecasts helped or not. Years later, I was contacted by a lawyer representing this company. They were being sued by competitors for having "inside information" that helped them. Their defense was that they simply had better forecasts. When I asked the lawyer how much the company made during this individual summer, he replied: "A fortune."

Glenn

this is a great story...

I think some markets like OJ futures which can still be very weather oriented hold lots of promise....the only thing is how often does an event that anomalous (damaging to crop's) occur with significant clarity say 10 days out...

I would say this offers more potential then first thought bc the two significant events that IMO could over ride wx being the main player would be POSITIVE for your FLorida orange futures bet.becaue 1. a giant euro bailout (which would be risk positive) and generally boost commodity's and stocks during the time your playing OJ futures 2. or the fed announcing qe 3 during the time your oj futures play is active (again qe 3 announcement would generally be risk positive) would also tend to boost commodity prices .(just like a freeze would damage crops and boost prices based on supply/demand) ...otherwise in the OJ market the wx would be the dominant player in the outcome of your "bet"

Jan OJ futures are 150.00 ATM

http://futures.tradi...tquotes/OJ.html

http://www.tradertec...uicetrading.asp

seems the futures ICE markets are primarily based on florida supply and not brazil (which supplies more globally)

Seems like a DAMN GOOD IDEA if you have the confidence in a general cold outbreak 10/11-15 days out ...i.e ahead of the other traders

I think this may be The ONLY market where someone could leverage there wx information with the least risk of the big boys bothering to get in the way....this holds lots of promise IMO

seems however "key trading knowledge" could be gained if one knew or had a HEADS UP that any "respected senior met" was gonna get air time on CNBC on a certain day and would be calling for a COLD ORANGE DAMAGING OUTBREAK .

[VAwxman]

I worked at AccuWeather from 1972-74, and there was a famous incident (don't remember the specific time) when Joel came to us and asked if we wanted to go in on orange futures, since we saw a big freeze coming about a week ahead of time. We were ahead of the market (not too many 1 week forecasts back then), and Joel supposedly made a LOT of money from it.

In 1980, my partner and I in Atlanta were approached by a private investment company and wanted specific forecasts during the great drought. We were paid a certain amount each week, and never knew whether our forecasts helped or not. Years later, I was contacted by a lawyer representing this company. They were being sued by competitors for having "inside information" that helped them. Their defense was that they simply had better forecasts. When I asked the lawyer how much the company made during this individual summer, he replied: "A fortune."

Glenn

Sweet. Surprised I never heard anything about that during my time there.

[VAwxman]

Weather has less to do with the market. Social psychology has much more to do with the market and pricing of shares. That's why it's so much harder to predict. Many times stock prices don't follow how economical or prosperous a company is, but more over the popularity of that company, whether it just had one bad day, or whether a few speculators wrote a scathing blog article about it. Over the years, earnings reports have had less and less to do with prices, too.

With all the speculation and hedging going on right now, simple decisions aren't the way to go. That's why they invented derivatives.

We're talking more the energy and ag markets though rather than a specific company's stock. Weather does still have a fair amount of power there.

[winterymix]

We're talking more the energy and ag markets though rather than a specific company's stock. Weather does still have a fair amount of power there.

My gut feeling is that the little guy stands to get clobbered by the big institutions and high frequency trading algorithms.

If you can't beat 'em, may as well join 'em.

In other words, a meteorologist with skill can help a corporation to make profitable decisions.

The tricky temptation is to take postions in the commodities markets, soybean futures, etc. Sure, you can stand to

make a fortune but over 90% of people get wiped out because volatility can trounce your position in a flash.

[burrel2]

this is a great story...

I think some markets like OJ futures which can still be very weather oriented hold lots of promise....the only thing is how often does an event that anomalous (damaging to crop's) occur with significant clarity say 10 days out...

I would say this offers more potential then first thought bc the two significant events that IMO could over ride wx being the main player would be POSITIVE for your FLorida orange futures bet.becaue 1. a giant euro bailout (which would be risk positive) and generally boost commodity's and stocks during the time your playing OJ futures 2. or the fed announcing qe 3 during the time your oj futures play is active (again qe 3 announcement would generally be risk positive) would also tend to boost commodity prices .(just like a freeze would damage crops and boost prices based on supply/demand) ...otherwise in the OJ market the wx would be the dominant player in the outcome of your "bet"

Jan OJ futures are 150.00 ATM

http://futures.tradi...tquotes/OJ.html

http://www.tradertec...uicetrading.asp

seems the futures ICE markets are primarily based on florida supply and not brazil (which supplies more globally)

Seems like a DAMN GOOD IDEA if you have the confidence in a general cold outbreak 10/11-15 days out ...i.e ahead of the other traders

I think this may be The ONLY market where someone could leverage there wx information with the least risk of the big boys bothering to get in the way....this holds lots of promise IMO

seems however "key trading knowledge" could be gained if one knew or had a HEADS UP that any "respected senior met" was gonna get air time on CNBC on a certain day and would be calling for a COLD ORANGE DAMAGING OUTBREAK .

This past winter I thought about OJ futures when it became apparent 5 days in advance that florida would have a freeze scare. I opened up a mock futures trading account for 100,000. Two weeks later I had that up to 220,000 solely buying and selling OJ futures. A forecaster doesn't need to predict a killing freeze in florida, you just merely have to be able to predict when a potential freeze could threaten florida a few days out. The biggest jump in price was the day before the "big freeze." You can get in any time before the final day prior to a freeze and be golden. I could not find an example in history where OJ futures did not go up the day before a forecasted freeze. Regardless of whether damage was actually realized.

[N. OF PIKE]

This past winter I thought about OJ futures when it became apparent 5 days in advance that florida would have a freeze scare. I opened up a mock futures trading account for 100,000. Two weeks later I had that up to 220,000 solely buying and selling OJ futures. A forecaster doesn't need to predict a killing freeze in florida, you just merely have to be able to predict when a potential freeze could threaten florida a few days out. The biggest jump in price was the day before the "big freeze." You can get in any time before the final day prior to a freeze and be golden. I could not find an example in history where OJ futures did not go up the day before a forecasted freeze. Regardless of whether damage was actually realized.

that's good to know...a bit suprising actually how ez that would sound..i haven't taken the time to go back and overlay forecasts with OJ futures over the last year or two (the period when the stock market has been most manipulated)

but any other AG market would not compare to the direct ability for a acute (timed) wx outbreak to occur that would have such a high % price impact.

I have a active account at scott trade and will be trading OJ futures (dipping toes in market) .....

[VAwxman]

My gut feeling is that the little guy stands to get clobbered by the big institutions and high frequency trading algorithms.

If you can't beat 'em, may as well join 'em.

In other words, a meteorologist with skill can help a corporation to make profitable decisions.

The tricky temptation is to take postions in the commodities markets, soybean futures, etc. Sure, you can stand to

make a fortune but over 90% of people get wiped out because volatility can trounce your position in a flash.

Yeah the little guy stands a good chance of being run over, no doubt. That's why we (or at least the vast majority of us) do stick to working with the folks who have the funds to participate without getting freight trained as easily.

I think where many who use weather to make trades go wrong is thinking that there is a weather play you can make every day / week. There isn't. Many times there just isn't a call you can make that is worth placing a big trade on, whether due to imperfection of the science, or the weather just not being "high impact". But there are numerous times over the course of a season / year that there is a clear weather play you can make, which will make lots of cash. As mentioned before, the trick is picking your spots and not getting carried away thinking you have to make a weather-related call / trade every day.

[QVectorman]

that's good to know...a bit suprising actually how ez that would sound..i haven't taken the time to go back and overlay forecasts with OJ futures over the last year or two (the period when the stock market has been most manipulated)

but any other AG market would not compare to the direct ability for a acute (timed) wx outbreak to occur that would have such a high % price impact.

I have a active account at scott trade and will be trading OJ futures (dipping toes in market) .....

If you have the ability to overlay forecasts or temperature records with historical OJ futures can you post the image? Thanks!

[QVectorman]

this is a great story...

I think some markets like OJ futures which can still be very weather oriented hold lots of promise....the only thing is how often does an event that anomalous (damaging to crop's) occur with significant clarity say 10 days out...

I would say this offers more potential then first thought bc the two significant events that IMO could over ride wx being the main player would be POSITIVE for your FLorida orange futures bet.becaue 1. a giant euro bailout (which would be risk positive) and generally boost commodity's and stocks during the time your playing OJ futures 2. or the fed announcing qe 3 during the time your oj futures play is active (again qe 3 announcement would generally be risk positive) would also tend to boost commodity prices .(just like a freeze would damage crops and boost prices based on supply/demand) ...otherwise in the OJ market the wx would be the dominant player in the outcome of your "bet"

Jan OJ futures are 150.00 ATM

http://futures.tradi...tquotes/OJ.html

http://www.tradertec...uicetrading.asp

seems the futures ICE markets are primarily based on florida supply and not brazil (which supplies more globally)

Seems like a DAMN GOOD IDEA if you have the confidence in a general cold outbreak 10/11-15 days out ...i.e ahead of the other traders

I think this may be The ONLY market where someone could leverage there wx information with the least risk of the big boys bothering to get in the way....this holds lots of promise IMO

seems however "key trading knowledge" could be gained if one knew or had a HEADS UP that any "respected senior met" was gonna get air time on CNBC on a certain day and would be calling for a COLD ORANGE DAMAGING OUTBREAK .

great post thanks!

[N. OF PIKE]

as we move into NOV this post should get a bump.....just because we are starting to enter a period (almost) if anyone starts to see signs of potential longer range patterns that may need to be looked at closer for extreme SE cold and then obviously as the time frame gets closer or the long term pattern appears clearer money gets ready

but we did see today was the AWESOME POTENTIAL this "play on OJ futures has"

an event that throws "nearly the entire " market off course......the market was poised to move out of a trading range and greek prime minister ripped the skin off from another "much needed" band aid in the euro area. . This risk "off" move negatively effected global stock exchanges and almost all commodities except 1. FCOJ in the green for the day (so far) http://www.bloomberg...dities/futures/

[QVectorman]

as we move into NOV this post should get a bump.....just because we are starting to enter a period (almost) if anyone starts to see signs of potential longer range patterns that may need to be looked at closer for extreme SE cold and then obviously as the time frame gets closer or the long term pattern appears clearer money gets ready

but we did see today was the AWESOME POTENTIAL this "play on OJ futures has"

an event that throws "nearly the entire " market off course......the market was poised to move out of a trading range and greek prime minister ripped the skin off from another "much needed" band aid in the euro area. . This risk "off" move negatively effected global stock exchanges and almost all commodities except 1. FCOJ in the green for the day (so far) http://www.bloomberg...dities/futures/

Interesting! Sorry I've been out of the country for the past 3 weeks and just read that.

[dom]

I trade natural gas futures full-time for a living. And wx drives residential and commercial heating also wx also effects power burn.So natural gas market follows the 12z. runs and it effects are seen daily on the price