Back in September 2020, CME – world’s largest futures exchange – had announced that soon Water Futures linked to the $1.1 billion California spot water market would be launched. And now water has officially started trading on the Wall Street for the first time history. But what caused this move? Will water become cause of wars? Hope not.
Crux of the Matter
Water Trading On Wall Street
Water Futures will enable traders to hedge against, or bet on the potential for water scarcity. There is speculation that the high-profile investor Michael Burry of “The Big Short” is eyeing to invest in this water contracts.
What Is A Futures Contract Though?
An agreement to buy or sell an asset, like water, at a specific time in the future at an agreed-upon price is known as a futures contract. Oil, precious metals, food commodities, natural gas, even electricity, etc have historically been traded via Futures Contracts.
HowWill Water Be Traded?
An acre feet is the amount of water it takes to cover an acre over land in one foot of water. One contract would represent 10 acre feet of water – a contract’s price will be determined by demand and supply of the underlying asset, water. In metric system, it is equal to the amount needed to cover 40,468 square metres in about 30 cm of water.
With nearly two-thirds of the world’s population expected to face water shortages by 2025, water scarcity presents a growing risk for businesses and communities around the world, and particularly for the $1.1 billion California water market.Tim McCourt, Global Head of Equity Index and Alternative Investment Products, CME Group
“Water shortages could affect around five billion people worldwide by 2050,” says the UN. The reason for water contracts linked to California is that this area is severely affected by water scarcity where record temperatures and raging wildfires have made it more critical.
Scientists and advocates for action against climate change have warned about the potential of water to create wars between countries. Water demand for drinking, household purposes, agriculture, energy, and in developing cities is increasing with each day. Looking at the availability of less freshwater on the Earth, it is likely that in the coming times water contracts may have huge value.
- Michael Burry is an American physician, investor, and hedge fund manager. Burry was the first investor to recognize and profit from the impending subprime mortgage crisis. He was the founder of the hedge fund Scion Capital, which he ran from 2000 until 2008.
- Water conflict is a term describing a conflict between countries, states, or groups over the rights to access water resources. The United Nations recognizes that water disputes result from opposing interests of water users, public or private. A comprehensive online database of water-related conflicts—the Water Conflict Chronology—has been developed by the Pacific Institute. This database lists violence over water going back nearly 6,000 years.
- Rajendra Singh is an Indian water conservationist and environmentalist from Alwar district, Rajasthan in India. Also known as “waterman of India”, he won the Magsaysay Award in 2001 and Stockholm Water Prize in 2015. He runs an NGO called ‘Tarun Bharat Sangh’ (TBS), which was founded in 1975. The NGO based in village Hori-Bhikampura in Thanagazi tehsil, near Sariska Tiger Reserve, has been instrumental in fighting the slow bureaucracy, mining lobby and has helped villagers take charge of water management.
- Presented annually since 1991, the Stockholm Water Prize is an award that recognizes outstanding achievements in water related activities. The Stockholm Water Prize Laureate is announced each 22 March at the UN World Day for Water and honoured each August during the World Water Week in Stockholm at a Royal Prize Ceremony and Banquet in the Stockholm City Hall.