Water has started trading on the commodity futures market due to the scarcity of this good, whose price will now fluctuate as does the oil, gold or wheat, as reported by CME Group.
The index Nasdaq Veles Califonia Water Index, with the tickerNQH2O, is based on a California water futures price indicator that this Tuesday is trading at about $ 486.53 per acre-pie, a measure of volume normally used in the United States equivalent to 1,233 cubic meters.
According to this indicator, the price of water in California has doubled in the last year and with the greater scarcity of this good, along with air, key to life, the arrival of raw materials on the market will allow, according to experts, a better management of the future risk associated with this asset. Farmers, funds or municipalities can protect themselves or speculate against changes in the price of water.
According to CME Group, the new contracts will allow better management of the risk associated with water scarcity and make a better correlation between supply and demand in the markets. Although the index is based on prices in California’s major river basins, where water scarcity has increased, this value can be used as a benchmark for the rest of the world in water markets.
Future contracts
These futures contracts do not require physical delivery of water and are purely financial, based on the weekly price averaged across California’s top five watersheds through 2022.
The new index will not have to resort to an estimate “by eye” of the future price of water, but rather to what are the expectations of the main players of this market.
China and the United States are the world’s main consumers of water and, according to the United Nations, 2 billion people live in countries with serious problems of access to water, while in the next few years two-thirds of the planet could experience water scarcity and millions of people will be displaced.
The excessive exploitation of these resources by the primary sector, industry and human consumption, as well as climate change, have led to this resource becoming increasingly scarce.
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