On Dec. 7, 2020, water futures began trading on the Chicago Mercantile Exchange. Futures are contracts to buy a commodity at an agreed price for later delivery, reducing uncertainty for buyers. The contracts are based on the price of rights to gain access to water in California.
Water rights are often traded in private transactions, but this is the first time water rights have been publicly traded in the U.S.
In theory, access to futures can reduce risk for buyers, permitting a hedge against the cost of future droughts. Speculators trade the contracts in hopes of profit, absorbing risks and helping establish prices, but trading can increase overall price volatility. Finance and water experts told the San Francisco Chronicle that the new instruments “may provide only limited risk protection and could even put upward pressure on water prices.”