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What's Better (for Commodity Investors) Than the Farmers' Almanac?


This tech company's algorithm gets it right 80% of the time, a year ahead of time -- and delivered to your phone.

MINYANVILLE ORIGINAL Weather's unpredictability has contributed to the evolution of financial markets. Futures were developed to help farmers protect themselves from swings in the market that they couldn't control due, in large part, to capriciousness of the weather.

It's not just farmers who need to keep an eye on the weather. Investors can use information about future conditions to gain an advantage in the market. Advanced knowledge of this past winter's warm weather could have clued investors in to positive performance in home centers like Home Depot (HD), and poor performance for commodities like natural gas.

One solution comes from a 10-year-old company based in Bethlehem, PA. Weather Trends International (or WTI) uses a massive proprietary algorithm that can zero in on the weather as far as 11 months ahead of time with 80% accuracy. The company uses meteorological techniques, climate cycles, statistics, trending data, and a 5.3 million line algorithm to predict the weather.

"A forecast WTI issued one year ago is more accurate than every other weather company's Day 6+ forecast," the company says. Third-party auditors have found that WTI's year-ahead forecasts are only surpassed in accuracy by the rest of the industry's day-ahead forecasts.

The company has provided business intelligence to retail companies Wal-Mart (WMT) and Target (TGT). For example, WTI predicted that last winter would be warmer than usual, and advised those companies to stock fewer heavy coats.

Media companies like Fox (NWS), agribusiness companies, and various manufacturers including Johnson & Johnson (JNJ) also use the service.

Circling back to its farm (or rather, commodity) roots, Weather Trends employees started to make small bets on commodities based on their meteorological data. Based on their results, they decided to start a new company called Weather Trades, which takes the meteorology to the next level by connecting advance meteorological data to the futures market.

Weather Trades' target audience includes hedge funds and banks that trade in commodities connected to the weather. When we met Weather Trades at the TechCrunch Disrupt New York conference this week, they were ready to head over to talk with Barclays (BCS) to show them their projections for sugar futures based on their Indian monsoon season forecast. (See chart on the right.)

Weather Trades' Vice President of Business Development and New Media Gary Zhou says that the company is still looking for hedge fund partners and other clients in financial services.

If you want to give Weather Trends' predictions a try, you can get them on your iPhone with a free app. The company also publishes a blog that occasionally has global weather information that could give you a hint for an actionable commodities trade.

Twitter: @vincent_trivett
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No positions in stocks mentioned.
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