For years, I have been aware of the global “water wars” that were coming. This is not because of a lack of freshwater, but largely due to gross human mismanagement of freshwater resources for the same reasons of so many other failures in life- greed, human corruption, dishonesty, and a desires for power over one’s fellow man, as well as holding unreasonable expectations about things that one should be reasonable about. For example, turning California’s inner desert/semiarid regions into a green laws at the expense of practically drying out the Colorado River makes about as much sense as Russia trying to grow cotton in the Uzbek-Kazakh deserts and in the process destroying the Aral Sea.
It has been warned for years that “water wars” would be a defining figure of the 21st century. I have been watching for this trend for a while, and while there have been real developments to show this is taking place, the fact is that until now, I have not seen a serious event I could point to as, without irony, a “watershed” moment that things were getting a lot more serious.
However, I have that moment now.
According to Business Insider, for the first time ever, water is going to be traded as a futures commodity.
The CME Group is set to launch futures contracts tied to the spot price of water for the first time ever this week.
The contracts will allow investors and farmers alike to bet on the future price of water. The contracts are tied to the $1.1 billion California spot water market.
While water will officially join the likes of gold, oil, and other commodities in being traded on Wall Street, the contracts will be financially settled. This means buyers of the contracts who hold on through expiration won’t be greeted by a delivery of millions of gallons of water like they would for other commodity based futures like oil and grain.
The water contracts are tied to the Nasdaq Veles California Water Index which was launched two years ago. The index is driven by the volume-weighted average of the transaction prices in California’s five largest and most actively traded water markets.
Contracts will each represent 10 acre-feet of water, equal to about 3.26 million gallons.
One high-profile investor potentially looking to capitalize on the newly launched water future contracts is Michael Burry of “The Big Short.”
Burry highlighted water as one of his top investment ideas following the great financial crisis of 2008, as he sees demand for the life-sustaining natural resource to continue climbing as supply falls due to population growth and climate change.
But farmers will likely utilize the water contracts more than investors, as they look to hedge out their input costs amid an increasingly uncertain climate environment.
The CME Group initially announced the launch of water futures back in September.
“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,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products. (source)
Let me repeat what I said earlier- “water is going to be traded as a futures commodity”.
If you do not understand from that sentence the seriousness of the matter, I will explain.
Future are contracts for a commodity- a real thing, often an agricultural product but it doesn’t have to be -to buy that item at some point in the future for a given price. Major futures contracts include coffee, tea, gold, silver, rare earth minerals, wheat, corn, frozen concentrated orange juice, and sugar. Futures brokers try to gamble on whether the price of the commodity will rise or fall, and then buy or sell accordingly, as the 1983 movie Trading Places explains brilliantly.
Futures contracts can also be manipulated. Cue the same movie from earlier, where after pulling and evil trick that destroys their lives, Eddie Murphy and Dan Aykroyd trick their broker employer with false data so they can impoverish them while enriching themselves.
This is a funny movie, but the concepts are real and the real world implications are dangerous.
Food itself can be almost anything, and while certain foods are traded as commodities, food is free. Water is also free, but has never been traded as a commodity before, and yet, water is more essential for life than food, for men die in three days without, but can last for even a month or more without food.
Commodities are always given to manipulation. This is something I have written about before with the US-China soy wars or pork wars, where the US is locked in a trade war with China and is using her dependency on US soy and pork to her advantage as a geopolitical weapon.
Starvation is bad enough. But if one adds into this this water now as a brokered commodity that can be bought and sold by contract as well as manipulated as a political weapon, the world is in DEEP trouble because it would be very easy to deny water access- to cut people off from drinking what they need to survive, just for political reasons.
This is beyond politics or control. This is just plain evil, and yet, it is now a serious trend to watch for since in the future, as trend and in the name of ‘contract’ issues, millions of people could lose water access and thus die. After all, as the Business Insider piece explicitly states, water is being commoditized because two-thirds of the world is at water risk- and somebody is looking to make a profit off of their suffering.
And make no mistake, while the US has large freshwater reserves, she could also be affected.