Winter is coming! A phrase that holds much fear for consumers and producers of commodities, who worry about the possible return of the very real polar vortex and the market volatility it creates.
The polar vortex became part of the American vocabulary for the first time in winter 2014, as households along the Eastern seaboard and parts of the Midwest saw their communities battered by unprecedented storms and low temperatures. (Learn more in "How to Mitigate Extreme Weather Events in ETRM Software.")
We don’t yet know whether the polar vortex is about to make an unwelcome comeback – or whether a strong El Niño that is forming in the Pacific Ocean and which reports suggest could rival its 1997-1998 predecessor will be the big weather story of the season.
We do know, however, that extreme weather events are becoming more and more common. After four years of drought, farmers in California are desperate for rainfall. In the past year, the state’s record drought has led to a water deficit of 62 trillion gallons in western states. Meanwhile, across the Pacific, recorded temperatures in 34 locations in Australia hit an all-time high in the past 12 months.
According to the World Economic Forum, these are just some of the extreme weather events in the past year, with others including:
More significant is the fact that last year is not an outlier or a freak occurrence. What were previously regarded as once-in-a-lifetime events are increasingly becoming once-a-year events. Record-breaking hot days that were previously expected once every 20 years are now likely every other year. According to a special report from the 220 scientists on the UN’s Intergovernmental Panel on Climate Change (IPCC), extreme weather events have been increasing in length, frequency, and intensity in past decades – and are projected to continue that increase throughout the 21st century.
In other words, the only thing certain about the weather is that it is becoming more volatile. Against a background of fast-changing patterns in global demand and increasingly lengthy and complex supply chains, extreme weather is only adding to the volatility. For example:
There is a long-term impact to these kinds of events. In its 2012 paper, "Extreme Weather, Extreme Prices," international NGO, OXFAM, modeled the impact of extreme weather such as droughts, floods, and heat waves on the prices of key international staple crops. Its research shows that extreme weather events in a single year could bring about price spikes of comparable magnitude to two decades of long-run price rises.
Of course, the latest figures also have to be considered against a backdrop of falling oil prices, currency fluctuations, and tensions in Ukraine and Russia — which only add to the complexity and volatility involved. Nonetheless, with extreme weather volatility becoming a way of life, commodities companies face huge risks, which increase proportionately to the complexity of the market. Sudden spikes in prices impair forecasts and have a negative impact on the bottom line. And without the right information made available at the right time, the ability to operate profitably is a matter of luck rather than judgment.
Commodities companies need access to large data-sets to inform their decisions. But that access must be in real-time, and the data being accessed must be relevant. Without the appropriate tools in place, that’s an impossible task. As in every other industry sector, the promise of Big Data and the insight that it can deliver can only be realized with significant analytics capabilities to turn raw numbers into actionable information. Without it, the data is just too big and too impenetrable to support optimal decision-making.
The need for advanced analytics is being addressed by Eka's Commodity Analytics Cloud which addresses the problems of today’s international commodity markets. Driving the evolution in commodity management, Eka's solution offers more predictive as well as traditional slicing and dicing of historical data. Commodity Analytics Cloud provides user-controlled analysis to help manage volatility at each stage of the supply chain.
By bringing predictive analytics to the business of commodities, Commodity Analytics Cloud is tapping into a much broader trend. Research from MIT has shown that two thirds of companies report competitive advantage from the use of analytics. Management consultants, Accenture, have also issued research that shows greater use of analytics helps firms to cope with the inexorable acceleration in the pace of change, and that any company that hopes to surpass its competitors in the race to keep up with change needs analytics on its side.
Commodity Analytics Cloud offers:
Importantly, Commodity Analytics Cloud incorporates a significant amount of information from external as well as internal systems – including meteorological and weather data. By simulating, visualizing, and helping to optimize any number of potential scenarios based on accurate information, companies in the commodities markets can make much better decisions in even the stormiest of conditions. Whatever the winter brings, Commodity Analytics Cloud is the equivalent of a snow plow, a generator, and a stockpile of fuel – the only way to ensure your survival.