Home 2020 Water Futures to Start Trading on Fear of Scarcity

Water Futures to Start Trading on Fear of Scarcity


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Water now joins Key commodities traded on Wall Street, highlighting worries that the life-sustaining natural resource may become scarce across more of the world.

Farmers, hedge funds and municipalities will be able to bet against potential water scarcity starting this wk, when CME Group Inc. launches contracts linked to the $1.1-B California spot water market. The futures will help water users manage risk and better align supply and demand.

The contracts were announced in September as heat and wildfires ravaged the US west coast. They are meant to serve both as a hedge for California’s biggest water consumers Vs rising prices and a scarcity gauge for investors worldwide.

We are going to watch how this new water futures contract develops, as the idea of managing risks associated to water has increased in importance.

The futures will be financially settled, as opposed to requiring the actual physical delivery of water, and are based on the Nasdaq Veles California Water Index started 2 yrs ago.

The index sets a weekly benchmark spot price of water rights in California, underpinned by the volume-weighted average of the transaction prices in the state’s 5 largest and most actively traded water markets.

Contracts will include Quarterly 1s through Y 2022, with each representing 10 acre-feet of water, equal to roughly 3.26-M gallons.

If a farmer wants to know what water will cost in California 6 months ahead the futures will allow market participants to see what everybody’s best guess is.

CME (NASDAQ:CME) declined to identify potential market participants, except to note that the exchange has heard from California agriculture producers, public water agencies, utilities as well as institutional investors like asset managers and hedge funds.

In addition to a interest from Wall Street the early water futures adopters will be large and small agriculture businesses.

This tool will help people manage water supply risk.

Have a healthy week, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.