The demand problem, the cost problem, the climate change problem, plus the political problem. These are all unsolved; highlighting the fact that parts of the world could already be headed towards possible water shortages.
Whatever solutions can be proposed, how our world distributes water has now taken capital finance directions. For the first time in the United States some of the country’s water supply is now being traded on Wall Street. Feeling thirsty to trade? (1)
Putting Prices On Water
The story starts in California where the west coast of the country was this year devastated by heat and wildfire. The first water index of its kind that calculates the state of California’s spot water price, was actually created back in 2018.
NASDAQ, an American stock exchange in New York City collaborated with Veles Water and WestWater Research to launch the Nasdaq Veles California Water Index (NQH20).
The intention was to give unparalleled transparency of water prices to serve the needs of the California water market. They made a press release in December 2020 stating they would also be trading water with a Chicago based company. (1)
CME Group Inc. (Chicago Mercantile Exchange) established themselves in 1848 as the world’s first futures stock and assets global market company. They have the world’s largest financial derivatives exchange, and trade assets such as agricultural products, currencies, energy, interest rates, metals, and stock indexes. (2, 3)
The collaboration and contracts mean in times of prolonged periods of drought, when farmers and municipalities have to purchase extra water at higher prices, they can now bet on future contracts to help offset the burden of increased tariffs. Of course, playing the stock market has its risks too, and should bets be placed on predicted dry years and the opposite happens, then traders may lose money, and face financial difficulties.
Water Shortages Cause Market Buzz
The future of trade is uniquely tied to the Nasdaq Veles California Water Index. The January 2021 water contract with CME went live in December 7th 2020, and had two trades, instantly.
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.
These new contracts certainly took industry-leading liquidity through different realms. But how might the course of water shortage trickle down, through trading? This could go swimmingly well for world water shortage, even though there are always winners and losers on Wall Street! At the very least the trading success can be used as a reference for the rest of the world in the water markets. (2, 3)
Water shortage prod to action
For everyday life, water is crucial. Beyond the need for life, we rely on it for the development of agriculture, production of electricity, and even transportation. For continued economic activity, a combination of ensuring access to safe and reliable sources, and fairness in price is essential.
Water shortage caused this trading intervention, and we can be left wondering if this is an aqueous solution, or just the start to profiteering. Whether you enjoy or support the trading of global energy, this could at least be an intervention in acceptance of our planet running dry.
