Water Begins Trading on Wall Street in the Futures Market for Fear of Shortages

According to CME Group, the company in charge of launching the contracts, this will allow better management of the risk associated with insufficient vital liquid and regulate its supply and demand in the markets.
Water Begins Trading on Wall Street in the Futures Market for Fear of Shortages
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Entrepreneur Staff
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This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Starting this week, water will be traded on the Wall Street commodities futures market, due to its scarcity. The price of the vital liquid will fluctuate just like oil, gold or wheat, CME Group reported.

The price of water in California has doubled in the last year, according to the Nasdaq Velez California Water Index . Experts assure that its arrival on the commodity market will allow better management of the future risk associated with this asset.

The US company CME Group will launch contracts related to California spot water , a market of 1.1 billion dollars. With the NQH2O ticker , the price of water futures in California was trading today at about $ 486.53 per acre-foot , which is equivalent to 1,233 cubic meters.

The index is based on prices in California's major river basins, where water scarcity has increased. This value can be used as a reference for the rest of the world in the water markets.

 

 

Farmers, funds or municipalities may protect themselves or speculate against changes in the price of water. According to CME Group, the new contracts will allow better management of the risk associated with water scarcity and make a better correlation between supply and demand in the markets.

These futures contracts do not require physical delivery of water and are purely financial. They are based on the weekly price averaged across California's top five watersheds through 2022.

These contracts are the first of their kind in the United States and were announced in September, when the west coast of the country was devastated by heat and wildfires. According to Bloomberg , they are intended to "serve as protection for California's largest water consumers against rising prices and as an indicator of scarcity for investors around the world."

China and the United States are the world's main consumers of water. According to the United Nations, 2 billion people live in countries with serious problems of access to water. The agency estimates that in the next few years two-thirds of the planet could experience water shortages and millions of people will be displaced by it.

The insufficiency of the vital liquid is related to the excessive exploitation of these resources by the primary sector, industry and human consumption, as well as climate change.

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