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10th January 2021
Water, A Free Resource, May Soon Become A Wallstreet Commodity At A High Price

by: True Activist Posted on December 24, 2020

Whatís manís ultimate basic need? Water, of course. Unfortunately, this resource isnít as common as one would want. Itís become scarce, with certain parts of the globe needing a clean supply badly. This source of life may soon become one of the hottest commodities on Wall Street futures market because of its high need and demand.

Like other commodities such as oil, wheat, and gold, prices for water may soon see its share of fluctuation. In fact, the CME group has already launched its futures contracts tied to the spot price of water.

The Nasdaq Veles California Water Index has been in charge of measuring the volume-weighted average price from five of Californiaís primary watersheds. The company has begun trading under the ticker NQH20 on the Chicago Mercantile Exchange last Monday morning, and the very next day, the prices soared to about $486.53 per Acre Foot.

The contracts that have been processed will let investors and farmers alike bet on future prices of what is now considered to be liquid gold. The contracts are tied to the $1.1 California spot water market as stated in the Business Insider.

This piece of news has left many readers aghast as this is the first time water has been traded in such flagrant manner.

In the past year, in fact, the price of water in California has doubled from its original price. People have begun fearing this fact because it has become evident that water is now considered a crucial resource because of its scarcity. Market analysts have been looking into this phenomenon and say that the arrival of water futures to the international market will allow for the better management of risks tied to any shortage of this fundamental good.

During a drought-stricken year, for instance, people will now be able to bet on futures contracts to offset the higher prices in case these do increase. That way, they will be able to offset what theyíll actually have to shell out in the water market in the future. As for big agricultural firms and municipalities, they would also, in theory, have the ability to protect themselves from large swings and fluctuations in the price of this commodity that was once considered free.

The CME group was quoted saying, ďThe NQH20 futures will be an innovative tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer, which can help to more efficiently align supply and demand of this vital resource.Ē

This financial group touted that the NQH2O index was the likely benchmark for global water markets. As for the new futures market, this also creates the possibility that water will be the focus of aggressive and relentless speculation from financial giants, part of which are major banks and hedge funds.

When it comes to the top consumers of water in the world, China and the United States in the lead. With the latter, California accounts for some nine percent of the nationís daily consumption. In fact, Californiaís water market is about four times bigger than that of any of its neighboring states. The water transaction there totaled to a hefty $2.6 billion between 2012 and 2019.

California is considered an agricultural giant where high-value crops such as almonds and pistachios. This means that the farms in these areas regularly require large amounts of water supply. Aside from that, California is also filled with oil production facilities that use equally hefty amounts of water while fracking for oil and gas.

As of late, the state has been frequently hit with major droughts. The business have been as volatile as the price of the resource, according to news giant CNN.

Moreover, according to the United Nations, roughly a total of two billion people live in countries where basic access to water is an extremely serious problem. Its citizens have to do a quite a bit of a commute in order to get their share, and In the next few years, up to two-thirds of the planet could actually experience water shortages. As a result, millions of people may actually find themselves displaced from their homes.

In gist, this precious liquid has been excessively exploited, not just by the civilians, but also by the mining sector and huge industries. Thatís not the only problem, though. Climate change has also been a big driver of the ever increasing water scarcity issues.