More hedging options: Gold and oil futures welcome another resource competitor to Wall Street and it's water
(Kitco News) We are all familiar with gold and oil futures on Wall Street, but now investors will be able to trade water futures as the CME Group launches its water contracts this week.
The CME water contracts were first announced back in September and are connected to the $1.1 billion California spot water market.
The idea is to enable traders as well as farmers to bet on future water prices as well as a hedge against potential water scarcity. Unlike oil, the water contracts will be financially settled, which means that if buyers choose to hold through expiration, they won't be receiving millions of gallons 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, CME Group global head of Equity Index and Alternative Investment Products, said back in September.
The futures will be part of the Nasdaq Veles California Water Index.
"The Nasdaq Veles California Water Index helps drive better outcomes for water market participants through verifiable price discovery," said Lauren Dillard, executive vice president and head of Nasdaq Global Information Services. "Our collaboration with CME Group has the power to deliver greater transparency around the management of an important natural resource."
Each contract will stand for ten acre-feet of water, which is about 3.26 million gallons.
The listing date is December 7, and the initial contracts are for January 21, February 21, March 21, June 21, September 21, December 21, March 22, June 22, September 22, December 22.