Wall Street Gears Up To Trade Water Futures As Scarcity Fears Surge  

Freshwater is an ultimate essential resource for the human race – the loss of it would be fatal for hundreds of millions.

For years we’ve outlined the coming water wars (see: here & here) not just in the US but across the world. 

Starting this week, water will be joining crude, copper, soybeans, and other commodities traded on US exchanges, which suggests potential water scarcity problems could be nearing.  

Farmers, hedge funds, and municipalities will soon be able to trade water contracts linked to the $1.1 billion California spot water market, according to Bloomberg, citing Chicago-based CME Group. 

Water contracts will help users manage risk and better align supply and demand. They were first announced in September as wildfires ravaged western states. 

“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,” said RBC Capital Markets managing director and analyst Deane Dray. “We are definitely going to watch how this new water futures contract develops.”

Tim McCourt, global head of equity index and alternative investment products at CME, said billions of people around the world live in areas where water scarcity is a major problem.

“The idea of managing risks associated with water is certainly increased in importance,” McCourt said. 

Bloomberg notes the contracts are based on the Nasdaq Veles California Water Index and will be “financially settled,” as opposed to physical delivery of the resource. The index started two years ago and sets a weekly benchmark spot price for California’s water rights. Each contract size is equivalent to 10 acre-feet of water, equal to approximately 3.26 million gallons.

Patrick Wolf, senior manager and head of product development at Nasdaq, said the new contracts will give farmers a “best guess” at how much water would cost months from now. 

Clay Landry, managing director at consulting firm Westwater Research, which provides data to calculate the water index, said large and small agriculture businesses would be some of the first to trade the contracts. 

“Without this tool, people have no way of managing water supply risk,” Landry said. “This may not solve that problem entirely, but it will help soften the financial blow that people will take if their water supply is cut off.”

We may live on a “blue planet,” but with 3% of all of our water is fresh, and much of it is inaccessible – Wall Street has understood the coming scarcity of water and potential wars that could be fought over it.