Last Call For Water We Waiting For, Con't

Climate change means your water bill is going to skyrocket in the years ahead, and for places where water is already scarce out west, you can change that timeframe to "months ahead".

Water is joining gold, oil and other 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 alike will be able to hedge against -- or bet on -- potential water scarcity starting this week, when CME Group Inc. launches contracts linked to the $1.1 billion California spot water market. According to Chicago-based CME, the futures will help water users manage risk and better align supply and demand.

The contracts, a first of their kind in the U.S., were announced in September as heat and wildfires ravaged the U.S. West Coast. They are meant to serve both as a hedge for California’s biggest water consumers against skyrocketing prices and a scarcity gauge for investors worldwide.

“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.”

Two billion people now live in nations plagued by water problems, and almost two-thirds of the world could face water shortages in just four years, Tim McCourt, global head of equity index and alternative investment products at CME, said in an interview. “The idea of managing risks associated to water is certainly 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 two years 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 five largest and most actively traded water markets.

Contracts will include quarterly ones through 2022, with each representing 10 acre-feet of water, equal to roughly 3.26 million gallons.

Currently, if a farmer wants to know what water will cost in California six months from now, it’s kind of a “best guess,” Patrick Wolf, senior manager and head of product development at Nasdaq, said in an interview.

The futures will allow market participants to see “what is everybody’s best guess,” he said.

 

How quickly will Republican-controlled states move to peg the price of water for utilities to commodities markets like this?  What happens to cities like Phoenix and Las Vegas when water becomes more expensive than fuel?

And yes, public water agencies will want to lock in prices ahead of time.

And pass those prices along to consumers.

This needs to stop, and the fact it's happening in California first was inevitable, but awful.