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CNN Live Saturday

Brokerage Houses Employ Meteorologists to Predict Outlook for Certain Stocks

Aired May 26, 2001 - 13:15   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DONNA KELLEY, CNN ANCHOR: Your future can depend on the weather, let's make that futures, as in plural. Would you find it odd to learn that there's a weather forecaster at your favorite brokerage house? The "Wall Street Journal" tells us that weather can affect prices certainly at Chicago's commodity markets and some stocks on Wall Street.

Jon Davis is a meteorologist for Salomon Smith Barney in Chicago. He has been forecasting the weather for agriculture traders since 1985, and he joins us today. Hi, Jon.

JON DAVIS, METEOROLOGIST: Hi, how are you doing.

KELLEY: Real good, I hope you are the same. You know, a lot of us found this very interesting, and of course it makes perfect sense that the weather affects so many other things other than parades and weddings. And the first thing that certainly came to my mind was agriculture for futures trading. How big of a deal is that?

DAVIS: Well, certainly the biggest variable in agriculture, of course, is the weather. In other words, how much corn and soy bean and wheat production that will have.

We also look at things on a worldwide scale, from a standpoint of -- there is citrus in Florida, coffee in Brazil, the Indian monsoon, Chinese weather, that's really one of the facets here that we work with a lot is agriculture regions, and any place where anything is grown, then our job is to monitor that here and watch what kind of weather conditions are affecting crops.

KELLEY: How far ahead does your forecasting go? If somebody is trying to plant spring weed, or if they are trying to figure out what is going to go on this summer even for energy prices, how far out do you go?

DAVIS: Well, one of the things that we do twice a year is put out seasonable weather outlooks. Early in April we put out our early summer outlook, and what that does is kind of look ahead as to what prospects that we think are going to happen this summer, especially in the United States, and what some of those impacts will be to the agricultural community, as well as the energy community.

KELLEY: What do you see for this summer, then? DAVIS: Well, from a standpoint of temperatures across the U.S. this summer, we do not think it is going to be a hot summer on a national basis. In other words, we do not think that the nation as a whole is going to have a very hot summer going through that key June, July, August period.

There are some regional areas, however, that do have a likelihood of having some pretty hot weather coming up, and of all the research that we did and all the specific variables that we tended to look at, we thought the Western U.S., with California included in that, is really the area that will have the most likely situation forgetting the hottest temperatures throughout much of the summer season.

KELLEY: Yeah, which is not good news for energy. But then, if you can make some predictions, then what do they do with your predictions?

DAVIS: Well, pretty much from a prediction stand, what you can do is kind of look ahead and try to, you know, risk-manage the situation here, whether that's from a crop potential here, whether that's from an energy use potential, and certainly the California situation we think is going to be pretty serious here this summer, with a lot of blackouts and things like that.

So really, what they can do is look ahead and kind of look at the worst-case scenario for what could happen out West this year.

KELLEY: Not that I think that you'll be wrong, or that you wouldn't be accurate, but what happens if your predictions are off?

DAVIS: In any job where you predicting anything, whether that's predicting the weather or predicting the news here, there are timeframes where you're going to be wrong in those predictions here. That is part of the job.

But most of the time here, if you do your research correctly here and you go through, then certainly the people and the clients that you work with within your company really understand that, and what you're trying to do is get those forecasts right the majority of the time.

And that's also why we come into the office every day. We put out a summer forecast in early April, but we also come in every day, every week here and refine those forecasts, as we're going through the season.

KELLEY: Jon Davis, meteorologist with Salomon Smith Barney, thanks very much. Fun to talk to you.

DAVIS: My pleasure.

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