Water, the base of life on Earth, began trading on the commodity futures market this Monday due to the shortage of this good, whose price will now fluctuate as do oil, gold, or wheat, reported today CME Group.
The Nasdaq Veles California Water Index, with the "ticker" NQH2O, is based on a California water futures price indicator that today was trading at about $486.53 per acre-foot, a measure of volume normally used in the United States equivalent to 1,233 cubic meters.
The price of water in California has doubled in the last year according to this indicator, and with the greatest shortage of this good, along with the vital air for life, the arrival on the commodity market will allow experts to manage better the future risk linked to this good.
Farmers, funds, or municipalities may protect themselves or speculate against changes in the price of water.
According to CME Group, the new contracts will adequately manage the risk associated with water scarcity and 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.
These futures contracts do not require physical water delivery and are purely financial, based on the weekly price averaged between California's top five basins through 2022.
The new index will not have to resort to a "by eye" estimate of the future price of water but to the leading players' expectations in this market.