Water joined 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 are now able to hedge against — or bet on — future water availability in California, the biggest U.S. agriculture market and world’s fifth-largest economy. CME Group Inc.’s January 2021 contract, linked to California’s $1.1 billion spot water market, last traded Monday at 496 index points, equal to $496 per acre-foot.
It seems these futures are tied to the spot price of water rights in California, measured against 10 acre-feet of water (roughly 3.26 million gallons).
To be honest I am not sure how I feel about this. At the end of the article there is a quote from a researcher saying that there is currently no way for people to manage their water supply risk. I think that has the situation sideways, commodity doesn’t help you manage risk, it helps you make decisions based on general risk.