Water is being traded in the financial markets
Water, the basis of life on Earth, has started to be traded on the commodity futures market and its price will fluctuate from now on, as does gold or oil, the CME group reported. According to Gustavo Copelmayer, this good, essential for life, has been scarce and rationed, hence they are looking at its value over time.
The Nasdaq index in California, under the name NQH2O, is based on an indicator of future prices for water in California, which began trading at about $486.53 per acre-foot. Gustavo Copelmayer notes that the price of water in California has doubled in the last year according to this indicator, and with the greatest shortage of this good is also air, both key for life.
Farmers, funds or municipalities will be able to protect themselves or speculate against changes in the price of water, while for the CME group, the new contracts will allow enhanced 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 of 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 the five main California basins through 2022, Gustavo Copelmayer clarifies. The new index will not have to resort to an estimate “by eye” of the future price of water, but it is based on the production expectations of the main players in this market. According to the United Nations, the largest consumers of water on planet earth are China and the United States. However, Gustavo Copelmayer indicates, some 2 billion people live in countries with serious problems of access to this vital liquid. Hence, markets are anticipating that in the next few years, two-thirds of the planet could experience water shortages and generate an immense displacement of populations.