Why did water start trading on Wall Street and how it can impact Argentina

Water futures contracts began trading on Wall Street

Water, the basis of life on Earth, began trading this week on the commodity futures market due to the shortage of this good, whose price will fluctuate as do oil, gold or wheat, reported today CME Group.

The Nasdaq Veles California Water Index, with the “ticker” NQH2O, is based on a California water futures price indicator that today was trading at about $ 486.53 per acre-foot, a volume measure commonly used in United States equivalent to 1,233 cubic meters.

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The price of water in California has doubled in the last year according to this indicator and with the greatest scarcity of this good, together with the key air for life, the arrival of raw materials on the market will allow, according to experts, a better management of future risk linked to this good. Farmers, funds or municipalities will be able to protect themselves or speculate before changes in the price of water.

The Pacific Coast in California
The Pacific Coast in California

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. Although the index is based on the prices of the main river basins in California, where water scarcity has increased, this value can be used as a reference for the rest of the world in the water markets.

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

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The new index will make it possible not to have to resort to an estimate “by eye” of the future price of water, but rather to what are the expectations of the main players in this market. China and the United States are the world’s main consumers of water and according to the United Nations, two billion people live in countries with serious problems of access to water, while in the next few years two thirds of the planet could experience water shortages and millions of people being displaced.

The excessive exploitation of this resource by the primary sector, industry and human consumption, as well as climate change, have led to this resource becoming increasingly scarce.

Nasdaq and Veles Water are reported to have “partnered with West Water Research, LLC, the leading economic and financial consulting firm in the water trade, to develop the California Nasdaq Veles Water Index (NQH2O Index).”

“This index tracks the price of water rights in the five largest and most actively traded regions in the state of California, including the California surface water market and the following four adjudicated groundwater basins: Central Basin; Chino Basin; San Gabriel Main Basin; and the Mojave Basin ”.

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“Between 2012 and 2019, these markets accounted for nearly US $ 2.6 billion in transaction activity. The NQH2O Index uses WestWater’s Waterlitix database as the source of underlying transaction data. Sale and lease transactions are included in the NQH2O Index. The index is priced in US dollars per acre-foot. An acre-foot is the volume of water necessary to cover an acre of land to a depth of one foot, which is equivalent to 325,851 gallons ”, it was indicated.

The NQH2O index was launched on October 31, 2018 at a value of $ 371.11 per acre-foot. The index value reflects the volume-weighted average price of water, at the source – excluding transportation costs and losses in underlying markets, after adjusting for idiosyncratic price factors specific to each of the markets and transaction types. eligible. It is calculated and released once a week and is published every Wednesday morning at approximately 9:30 AM (Eastern Time) and represents water leases and sales that occurred Monday through Friday of the week before, it was detailed.

Its impact in Argentina

Matba’s Market Development Manager Roex, Marcelo Comissoexplained to Infobae that this market still sounds like a futuristic illusion for Argentina.

“Argentina has an abundance of fresh water throughout the country, North and South, but what it can provide is value for production in Mendoza or Río Negro. In any case, it is still a very small global market, with 2.6 billion dollars in California, which is a negligible figure for the size of the financial markets, “he said.

Water scarcity is not a problem for the country
Water scarcity is not a problem for the country

“In Argentina the abundance of water resources is such that the benefits do not pay that cost, but it may be for countries that have a shortage of this source,” said Comisso.

“It is not a current issue or a strategic resource, unlike lithium with electric mobility, which is exploding for cars in China and the most developed countries”; concluded the economist.

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