Water Futures
We are well aware of the fact that water scarcity is bound to impact humanity in the coming decades. To put the potential repercussions into perspective, here are some stats for a Water Scarcity 101 –
- By 2025, half of the world will be living in water-stressed areas.
- Water demand is expected to grow by 55% by 2050, this includes a 400% increase is expected in the manufacturing water demand.
- Consequently, 6 billion of us will suffer from clean water scarcity by 2050.
Evidently, this is bad news for the world, the hydrohomies, and the businesses. While the world figures out a way to tackle the impending crisis, Wall Street has already devised a method to hedge against the uncertain future and prevent potential “liquidations”.
The CME Group, the world’s largest financial derivatives exchange is all set to launch future contracts of water linked to California’s 1.1 Billion USD spot water market. These contracts essentially enable businesses to safeguard themselves against volatility by securing water contracts for the future. Investors also get the opportunity to speculate and capitalise on the upcoming turbulence.
With the news in, major investors, including Michael Burry, are eyeing water as a robust investment.
How will these contracts function?
- Water futures will be freely traded on Wall Street much like existing future contracts of commodities like oil, gold, and even orange juice.
- The water contracts are tied to the Nasdaq Veles California Water Index.
- One contract will equate to 10 acre-feet of water, which is about 3.26 million gallons.
- A key difference between conventional futures and water futures is that physical settlement of these contracts will be absent and the futures will only be settled financially. Safe to say investors won’t be forced with a delivery of hundreds of barrels of water if they hold the contract until the settlement date.
- So the idea is to essentially reduce business uncertainty with respect to water acquisition through online trading of these financially settled contracts and then to subsequently use these funds to finance water acquisition.
- The key market players will include water intensive industries like agriculture and energy, and yes, investors.
- Provided is an article that’ll equip you with the basics on futures – /archive/oil-price-crash-do-i-get-gas-for-free
Implications of these contracts –
This new radical contract also brings concerning implications. Firstly, all other existing futures contracts trade in commodities that are not essential or pivotal to the human population. Water on the other hand is a universal right and access to water is a human need.
With water essentially transitioning into a vessel of heavy speculation, possibly, increased volatility might reverberate back across to us, the general consumers, in the form of price disruptions and inflation. Consequently, this might worsen the existing inequalities with respect to access to water.
We are aware of corporate acquisition of local water resources and especially the Nestle fiasco where their Chairman, Peter Brabeck-Letmathe, disregarded access to water as a basic human right. Hence, the question arises, will the open market trading of water yield additional leverage to corporates for increased resource exploitation?
With water inequality and scarcity escalating, these concerns need urgent scrutiny.
Conclusion
Water futures will serve as a vital tool, providing certainty to water heavy industries against future turmoil. The lack of physical settlement might restrict corporate exploitation, however, open market trading is likely to affect consumer prices in the near future, a possibility that demands for strict regulation.
References and Relevant Articles –
https://www.corp-research.org/nestle
https://www.who.int/news-room/fact-sheets/detail/drinking-water
Wall Street to roll out water futures as privatization spreads global thirst