Now that’s A Liquid Futures Contract

The CME Group launched the first of its kind Water Futures contract on Monday joining the likes of other commodities available for trade with one small difference. Water won’t require any physical delivery or storage – unlike oil or corn, purchasers of a water future contract won’t be greeted by a delivery of millions of gallons of water (also meaning that we likely won’t have a storage shortage causing water going negative like other commodities we know of). Water has never been traded this way before.

Before the futures came along, the buying and selling of water rights, which allow the holder to pump water from the ground or reservoirs, only happened in the spot market. In dry years, when more water is required to grow crops and supply municipalities, it meant that buyers were facing high prices and a lot of uncertainty. (CNN)

And in 2020 where seemingly every event/announcement is in some way connected to a disaster, it makes sense that this contract would be launched. Announced in the midst of wildfires ravaging California forests and heat waves across the country, this contract is a sign of changing times. Listen to our pod with wunder-Meteorologist Dr. Jeff Masters for more on that dynamic and how it could affect different asset classes. The realization that water isn’t always going to be here is slowly making its way to the forefront of both domestic and foreign policy over in Washington – and this contract is further proof of that.

“Climate change, droughts, population growth, and pollution are likely to make water scarcity issues and pricing a hot topic for years to come,” said RBC Capital Markets managing director and analyst Deane Dray. “We are definitely going to watch how this new water futures contract develops.” (Bloomberg)

Of course, traders and speculators can add water futures to their arsenal, but seemingly this contract will be more appealing to farmers looking to hedge their crops.

Farmers, hedge funds and municipalities alike will be able to hedge against — or bet on — potential water scarcity starting this week, when CME Group Inc. launches contracts linked to the $1.1 billion California spot water market. According to Chicago-based CME, the futures will help water users manage risk and better align supply and demand. (Bloomberg)

The agriculture sector is the biggest buyer in California’s spot market, meaning they buy the most water during dry years. This trend has been intensified in recent years by the move to popular high-value permanent crops like almonds and pistachios, which require a lot of water for upkeep. (CNN)

One of our RCM Ag Services brokers – and California resident – Ron Lawson was on the CME Zoom the Water Contract presentation.

At the very least, this indexed, cash-settled contract, will enable California Farmers to fix irrigation costs, and take profits on surplus water, without having to lose ownership of the rights. This could be an active contract if this summer’s predicted drought materializes. Nothing makes a new contract succeed like a bull market. And if there is a drought this summer, this could become a very “liquid” market.

Nasdaq Veles California Water Index futures will be listed by and subject to the rules of CME. For more information and contract specifications, please visit For more information on the NQH20 Index, visit

Now, let your sci-fi brains run crazy on just how a water scarce world will look. If only they had hedged that dangerous water delivery in Mad Max Fury Road, they wouldn’t have had to build such a mean looking truck.

Of course, for us Chicagoans, the question is when do we start building the fortifications around Lake Michigan and protect “our” fresh water, BladeRunner 2049 style??

The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.