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ROFEX and S4 Agtech come together to develop a climate futures index

U$ 7.5 million paid in drought index coverages

March 7, 2016

Both companies, together with Argentina Clearing SA, signed an agreement to implement this innovative tool that will revolutionize risk transfer on a global scale. 

The possibility of having coverage against climate events such as droughts promises to revolutionize the management of agricultural production risk throughout the world. For this reason, ROFEX, Argentina Clearing and S4 Agtech signed an agreement for the development of a series of agricultural climate derivatives.

The lack of efficient tools to transfer systemic risk such as drought generates the need to incorporate technology to ensure annual returns. In addition, the integration of the Ag-industry into the financial world increases the interdependence of the entire chain. The experience and knowledge of the futures market and agricultural derivatives by ROFEX and Argentina Clearing and the agronomic and technological knowledge of S4 about the use of satellite imagery in agriculture, provided for this strategic alliance, which had as supporters the company Primary Ventures and the Buenos Aires Emprende program, carried out by the Government of the City of Buenos Aires.

Through the S4Index, the producer will be able to evaluate the risk of drought his business may face, and then by operating an OTC derivative registered in ROFEX, he will be covered against these systemic weather events.

The electronic market proposes transactional processes much more efficient than traditional ones, adding value to farmers and offering the possibility of incorporating small producers where traditional risk transfer programs are not at reach.

About S4 Index:

S4 is the first index in the world designed to cover the effects of drought in agriculture based on vegetation index.

Through the management of satellite databases and the application of algorithms and statistics, the technology company S4 created the S4Index that allows to support an index coverage for drought. This coverage works the same way as purchasing an option: if the S4Index is lower than the trigger, the payment is issued automatically.

Through statistical processes S4 calculates the premiums for each county, determining the risk in an objective and transparent manner.

Also, in its “IntegraSoja” program, Syngenta offers this coverage as a benefit. If the S4Index of the county where the grower plants, is lower than the trigger, Syngenta credits the payment in the grower’s account.

To give transparency to the process, the Indices are published online in the ROFEX page.

“With S4 we found a very strong correlation between the crop yields and the Vegetation Index during the critical period of the crop” said the head of the firm, Santiago González Venzano.

Source: Rofex