The spot price of water rights leases in California is up over 500% since late 2020 via /r/wallstreetbets #stocks #wallstreetbets #investing


The spot price of water rights leases in California is up over 500% since late 2020

The Nasdaq-Veles California water index (NQH2O) tracks the spot price for California water entitlements. As described on https://waterexchange.com/ca-water-index/, " The Index, the first of its kind, benchmarks the price of water in a way that supports water price discovery and allows for the creation of a tradable financial instrument to manage financial exposure associated with water supply risk."

The value is priced in US$ per acre foot (1 acre foot is ~326k US gallons). In December of 2020, it's value sat at ~200$ per acre foot. As of 07/27/2022, the value of the index was $1144.14 per acre foot. This is the highest value on record.

https://www.tradingview.com/symbols/NASDAQ-NQH2O/

High water prices are due to persistent mega droughts that are drying up the Colorado River. The average annual flow has dropped ~20% since the 1900's, and has made prices for water rights increase over that time. The spike in water prices, however, go further than that. Here are some of the factors driving the current spike.

  1. Water authorities are seeing higher costs of securing water supplies
  2. Prices for water treatment are increasing due to higher energy costs
  3. And the prices of already conserved supplies are rising with inflation

Lake Mead is the largest reservoir in the United States by volume, and has enough capacity to hold the entire annual flow of the Colorado River for 2 years. It helps supply 25 million people across Arizona, Nevada, and California with water. It also creates hydroelectricity through the Hoover Dam, supplying power to the three states. Continuing a 22-year downtrend, water levels in Lake Mead stand at their lowest levels since 1937. As of July 18th, 2022 Lake Mead was filled to just 27% of capacity.

https://earthobservatory.nasa.gov/images/150111/lake-mead-keeps-dropping

Data from the Bureau of Reclamation maps out the probabilities of certain operating conditions for Lake Mead through 2026.

https://new.azwater.gov/crm/dashboard

Lake Mead has upwards of 100% probability of tier 1 shortages (between 1075 and 1050 ft) through 2026 with a 33-43% chance of a tier 3 shortage (less than 1025 ft) in 2025 and 2026, respectively. The Hoover dam has been producing less and less electricity as water levels dwindle and will entirely cease to produce power (with possibly no water flowing downstream) if levels fall below 895 ft. If water stops flowing downstream, most farmers have no alternative water supplies.

tl;dr Bearish almonds

Submitted August 03, 2022 at 12:43AM by Blondeandblemished
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