So, you’re interested in the futures market.
It’s a dandy little place where you can make or lose a lot of money very fast, betting on where prices for commodities like wheat or oil are going to go in a set period of time.
You buy now a commodity at one price with a plan for delivery or to sell at a set point of time in the future — if the sale price goes up over what you paid, you win.
What are commodities? Well, unprocessed goods like oil, wheat, cocoa, soybeans, gold, pork bellies — essentially, all sorts of raw materials.
The idea behind the water futures exchange is to let big water users like almond farmers — or even cities — in drought-stricken places like California buy water in advance at a set price.
Futures trading even has its own world of language; there’s hardly enough space here to explain contango (it sounds like a dance, but it isn’t one) and backwardation — it’s enough to say they are opposites of one another, and involve the market’s view of where the spot price of energy is going. Crack spread — cramming — head-and-shoulders — Henry Hub — Iceberg order. Suffice to say, if you don’t know what they all mean and how the system works, you probably shouldn’t be dipping your financial toes in it.
Not if you like your toes.
But that doesn’t mean you shouldn’t be concerned about the futures trading business.
Because futures trading just took something of a dark turn. Dark, that is, if you’re not, say, a futures trader, but are instead interested in the fundamental rights of people.
Wall Street is about to start trading futures contracts on fresh water.
The goal seems reasonable enough. The idea behind the water futures exchange is to let big water users like almond farmers — or even cities — in drought-stricken places like California buy water in advance at a set price. Essentially, it would let big users “hedge” against big increases in price that might appear if supplies of water tighten dramatically. Essentially, those users would have already bought water for a set delivery at a set price, protecting them against unexpected price spikes.
The users won’t actually buy physical water that they have to store. As the Wall Street Journal explains, citing high summer water prices in California, “Had there been water futures, a farmer who bought summer-dated futures at the prevailing price months earlier could have pocketed big profits when drought hit and prices soared. Those gains could then be used to offset the higher cost of buying actual water.”
Sounds good, right?
Well, no.
There might be things that just shouldn’t be cash commodities — particularly fresh water. The feeling on the market is that water will get more valuable as climate change drives drought in many agricultural areas. And, if it gets more valuable, the people who have money will be the ones who can afford it.
Eventually on that road, what about the little guy who just needs a drink?