Water is joining 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 will be able to hedge against -- or bet on -- potential water scarcity starting this week, when CME Group Inc. launches contracts linked to the $1.1 billion California spot water market. According to Chicago-based CME, the futures will help water users manage risk and better align supply and demand.
The contracts, a first of their kind in the U.S., were announced in September as heat and wildfires ravaged the U.S. West Coast. They are meant to serve both as a hedge for California’s biggest water consumers against skyrocketing prices and a scarcity gauge for investors worldwide.
“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,†said RBC Capital Markets managing director and analyst Deane Dray. “We are definitely going to watch how this new water futures contract develops.â€
Two billion people now live in nations plagued by water problems, and almost two-thirds of the world could face water shortages in just four years, Tim McCourt, global head of equity index and alternative investment products at CME, said in an interview. “The idea of managing risks associated to water is certainly increased in importance.â€
The increasing scarcity of water is one reason I chose to not live in a dry part of Texas. Plenty of lakes and rain to head off problems the desert folks will begin enduring.