Water Futures Begin Trading On Wall Street Amid Climate-Related Shortage Fears

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Water has started trading on the Wall Street commodities futures market this week for the first time, joining the likes of gold, oil and wheat. The new water contracts, launched by the CME Group, will allow investors to hedge against or bet on the potential for water scarcity as concern about the shortage of the life-essential liquid continues to rise due to unsustainable industry and human consumption and the impact of the climate crisis. 

U.S. global markets firm CME Group has launched water futures contracts related to California spot water, a market worth an estimated US$1.1 billion. The company says that it will allow for the better management of risk associated with insufficient water supply, and make a better correlation between the supply and demand of water in the markets. 

The index is based on prices within California’s river basins, where water insufficiency has increased over recent years. According to the Nasdaq Velez California Water Index (NQH2O), the price of water has doubled within the last year alone. CME Group’s new water contracts will allow farmers, funds and municipalities alike to speculate against changes in the price of water, marking the first time water has begun trading on the futures market in the U.S. 

“Nasdaq Veles California Water Index futures will be an innovative, first-of-its-kind tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer – all of which can help to more efficiently align supply and demand of this vital resource,” said the company in a press release. 

Wildfires in California this year (Source: Noah Berger / AP)

Farmers are likely to be the main group who will utilise the water contracts, as they look to protect and hedge their input costs in the wake of climate uncertainties that are set to become increasingly frequent and severe in the future. 

Plans to launch water futures were first announced by the CME Group back in September this year, amidst the devastation of the wildfire crisis that ravaged across California that spotlighted the serious risk of climate-related impacts on the planet’s water supply.

With nearly two-thirds of the world’s population expected to face water shortages by 2025, water scarcity presents a growing risk for businesses and communities around the world.

Tim McCourt, Global Head of Equity Index & Alternative Investment Products, CME Group

Globally, over 2 billion people are currently living in countries where access to water is already affected, with India and China are predicted to be among the most at risk of water scarcity, according to a report by the United Nations released earlier this year. Experts also pointed out that the chronic underfunding of water infrastructure, especially those in Asia and Africa, is putting people at a worse health and environmental threat than the ongoing coronavirus pandemic. 

Community women make their journey to collect water at a WaterAid-partnered station in South Dacope, Khulna, Bangladesh (Source: WaterAid / Abir Abdullah)

India had previously already been listed among the 17 countries already suffering from extreme levels of high water stress due to population growth, climate change, wastewater and pollution in a study published by the World Resources Institute (WRI) last year. 

“With nearly two-thirds of the world’s population expected to face water shortages by 2025, water scarcity presents a growing risk for businesses and communities around the world,” said Tim McCourt, CME Group global head of equity index and alternative investment products. 

“The Nasdaq Veles California Water Index helps drive better outcomes for water market participants through verifiable price discovery,” added Lauren Dillard, executive vice president and head of Nasdaq Global Information Services (GIS). “Our collaboration with CME Group has the power to deliver greater transparency around the management of an important natural resource.”


Lead image courtesy of Adobe Stock.


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