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Summary
- CME Group Inc. opens the first-ever water futures index on Wall Street in the wake of worldwide water scarcity worries.
- The Chicago-based group unveiled contracts related to the US$ 1.1-billion California water market.
- The Nasdaq Veles California Water Index trades under the ticker symbol NQH2O.
- CME Group Inc.’s January 2021 contract to California’s spot water market, first-time traded on December 7 at 496 index points, equal to US$ 496 per acre-foot.
Water has now entered the league of oil, gold, and other commodities futures on Wall Street, representing concerns that the life-sustaining natural reserve may become insufficient around the world.
Chicago-based CME Group Inc unveiled agreements worth US$ 1.1 billion linked to the California water market for the first time in the US markets. The Nasdaq Veles California Water Index trades under the ticker symbol NQH2O.
Farmers, hedge funds, and metropolises will be able to hedge on potential water shortages starting this week. CME believes that this will facilitate consumers to better associate with water supply and demand.
Water comprises about 71 per cent of the earth's surface. Currently, 326 million cubic miles of water is available on our planet, as per the Bureau of Reclamation California-Great Basin. Only 3 per cent of the earth's water is clean and 97 per cent of the earth's water is found in the oceans that is too salty and not viable for basic use.
Moreover, 2.5 per cent of the earth's clean water is unavailable as it is frozen up in glaciers, polar ice caps, atmosphere, and soil. This water cannot be extracted at an affordable price. Thus, we are left with only 0.5 per cent consumable water.
CME Group’s Water Futures
This is an important development for California – the biggest US farm market and the fifth-largest economy in the world, if the state were a sovereign nation.
CME Group Inc.’s Jan. 2020 contract, linked to California’s US$ 1.1 billion water market, traded for the first-time on December 7 at 496 index points, which equals to US$ 496 per acre-foot (One acre-foot = 326,000 gallons water).
CME Group had announced about water futures in September this year as heat and wildfires wrecked the U.S. West Coast and as California was reviving from an eight-year drought. These events caused severe damage to big water consumers, like electric utilities and almond growers. The water future index will provide a hedge opportunity against water price variations as well as a water scarcity indicator for investors globally.
The futures will offer a weekly benchmark spot price of water in the California water market, bolstered by the volume-weighted average of the contract prices from five most traded regions in California.
The futures are financially sorted, as countered to requiring any physical delivery. Contracts comprise quarterly trading options through 2022, with each stand for 10 acre-feet of water, equal to nearly 3.26 million gallons.
As per CME Group, the futures will support water consumers curb risk and well-controlled supply and demand.
