Business News

Water is traded on the futures marketplace for worry of shortages on Wall Avenue

According to CME Group, the contracting company, this will enable better management of the risk associated with insufficient vital fluids and regulate supply and demand in the markets.

Free book preview Money-wise solo preneur

This book gives you the essential guide to easy-to-understand tips and strategies for achieving greater financial success.

December
7, 2020

3 min read

This article has been translated from our Spanish edition using AI technologies. Errors can occur due to this process.

Starting this week, water will start trading on Wall Street's commodity futures market due to its scarcity. The price of the vital fluid will fluctuate just like oil, gold or wheat, the CME Group reported.

The price of water in California doubled last year, according to the Nasdaq Velez California Water Index. Experts assure that its arrival in the commodity market will allow better management of the future risk associated with this asset.

The US company CME Group will sign contracts related to California spot water, a $ 1.1 billion market. Using the NQH2O ticker, the price of water futures in California was trading today at around $ 486.53 per acre, which equates to 1,233 cubic meters.

The index is based on prices in California's major river basins where water scarcity has increased. This value can be used as a reference for the rest of the world in the water markets.

. @Nasdaq Veles California Water Index (NQH2O) futures are the first of its kind here to help market participants manage water supply and demand risk.

– CME Group (@CMEGroup) December 7, 2020

Farmers, funds or communities can protect themselves or speculate against changes in the price of water. According to CME Group, the new contracts will enable better management of the risk associated with water scarcity and establish a better correlation between supply and demand in the markets.

These futures contracts do not require the physical delivery of water and are purely financial in nature. They are based on the weekly price averaged over the five largest water catchment areas in California until 2022.

These contracts are the first of their kind in the United States, and were announced in September when the country's west coast was devastated by heat and forest fires. According to Bloomberg, they are "intended to protect California's largest water consumers from rising prices and as an indicator of the scarcity of investors around the world."

China and the United States are the world's largest consumers of water. According to the United Nations, 2 billion people live in countries with serious problems with access to water. The agency estimates that two-thirds of the planet could suffer from water scarcity in the next few years, displacing millions of people.

The insufficiency of vital fluids is related to the over-exploitation of these resources by the primary sector, industry and human consumption, as well as climate change.

Related Articles