Southern California Water Price Jumps 48% In 3 Weeks As Rainy Season Disappoints
Californians received a double dose of not so happy water news last month; cutbacks were made to water allocations and a key water price index surged higher. Drought fears are heightening due to low reservoir levels and below normal snowpack.
The winter precipitation season generally ends with the month of March, and it looks like California will head into summer with lower water supplies than last year after a second consecutive winter of below normal rain and snowpack. The state’s Department of Water Resources has wasted no time in sounding alarm bells; officials have already announced 50 percent cutbacks from December 2020’s projected water allotments to State Water Project allocations for the 2021 water year. California residents were warned “to plan for the impacts of limited water supplies this summer for agriculture as well as urban and rural water users.”
Normal October through March rain and snowfall patterns have fallen short of what’s needed to replenish California’s diminished water supplies, which means the winter precipitation season has ended again with below normal reservoir water levels and low snowpack in the mountains. Things could certainly change with heavy unexpected precipitation, but hopes are dimming fast as the dry season commences. It looks like Californians will have to wait for the monsoon season that begins in mid-June before there is a higher chance for replenishing rains again.
The privately issued Veles Weekly Water Report dated April 8, 2021 had Shasta Lake, California’s largest reservoir, at 53 percent of its acre foot water storage capacity, down from 79 percent in the equivalent week last year. The same report shows statewide California snowpack levels at just 61 percent of the snow water equivalent (SWE) inches normally measured as of April first in any given year.
Statistics like these as of the end of March have set off alarm bells amongst state officials and water industry participants around California; water prices have reacted accordingly. The Nasdaq Veles California Water Index (NQH2O), a weekly water price metric published every Wednesday morning at 6:30am (Pacific Time) has jumped an incredible 48 percent in just the three publication weeks from March 17, 2021 when water was priced at $529.58 per acre foot, through April 7, 2021 when the price hit $783.94. The index tracks actual water transactions only in select areas of Southern California, but it is a publicly available price metric that illustrates the tightening supply/demand situation in what is undoubtedly California’s – and the world’s – most important commodity.
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There are futures that track the Nasdaq Veles California Water Index (NQH2O), but they are only a few months old and not yet widely traded, which means few, if any, water users in California were able to price hedge the cost of their 2021 summertime water needs prior to the dramatic price rally. Indeed, the futures as of this writing, April 9, 2021 are quoted at a slight premium to the most recent weekly (April 7, 2021) Nasdaq Veles California Water Index (NQH2O) price posting, indicating continuing expectations for elevated water prices, at least for now and probably so long as there isn’t a significant rain event in California.
Time will tell, but right now the weather and the markets are both signaling that Californians should prepare for an extended period of high water prices.