Globally, pension funds are estimated at $18.6 trillion, and about $80 billion if this is thought to be invested in commodities, much of it in futures contracts.
This may be good news for farmers, because institutional and pension funds typically invest on a long-term basis for at least 30 years.
Such a long-term commitment might ease the eventual bust of currently booming futures for grain, for example. For farmers that could mean a softer landing when less committed speculators desert grain futures, and prices plummet.
Pension fund managers are traditionally cautious in adopting new investment strategies.
However, there are bound to be a few betting on some of the innovative new futures products designed to attract some of the billions seeking a home away from sinking stock markets or sub-prime mortgage defaulters. They include weather futures tradeable on the Chicago Mercantile Exchange. The contracts allow the user to hedge against weather that could negatively affect their business.
They will pay out a given amount on the basis of certain weather conditions being met over a finite time period. For example, a ski resort could hedge against the threat to their income posed by the risk that less than two inches of snow will fall in February.
According to market analysts, volumes have been growing in these “weather bet” contracts.