Can Wall Street help us find the true price of water?

You could be forgiven if, amid the recent chaos of COVID-19 and U.S. politics, you missed some news related to what is arguably Canada’s most valuable mineral resource.

Just before Christmas, the CME Group, the New York-based market operator that takes its name from the Chicago Mercantile Exchange — once described as the biggest financial exchange you’ve never heard of — began trading water futures.

For the first time, Wall Street traders are now able to take a stake in the future value of water, the way they have with other agricultural and mineral commodities.

As with gold or pork bellies or natural gas, commodities speculators may see it as a kind of sophisticated gambling on derivatives, but the intent of the new water futures market is to share the risk of unexpected price swings for farmers and other water users.

While traded in North America’s financial capital, so far the water contracts being bought and sold are limited to five water districts in drought-prone California, representing a tiny fraction of the water actually used in the state, never mind the whole country.

But as the commodities market launched, the implication by many of those involved, including CME Group executive Tim McCourt, was that pricing water risk could be a business that expands well beyond California.

‘Liquid and transparent’ markets’

“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,” said McCourt in a release announcing the new market, which it referred to as “liquid and transparent.”

One long-time advocate of investing in water is Michael Burry, made famous in the book and film The Big Short after he made a killing with a contrarian bet against subprime mortgages just before the market collapsed in 2007.

“Climate change, droughts, population growth and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,” RBC Capital Markets managing director Deane Dray told Bloomberg Green after the CME water market began trading. “We are definitely going to watch how this new water futures contract develops.”

Folsom Lake in California was at 17 per cent of its full capacity in 2017. High water demand, a growing population and a dry climate has helped lead to the trading of private water rights in the state. (Robert Galbraith/File Photo/Reuters)

Water remains big business. The URL for the upcoming Global Water Summit scheduled this spring in Madrid — with an agenda that includes some of the world’s biggest water producers and consumers — is watermeetsmoney.com.

But the idea of water as something to be bought and sold by Wall Street speculators does not necessarily sit well with those who study the economics of this resource in Canada.

“I find it quite disturbing,” said Jim Warren, Regina-based scholar and author of Defying Palliser: Stories of Resilience from the Driest…