Feb 11, 2021
With NQH20, Nasdaq offers its expertise in benchmark production to the betterment of markets supporting our most precious natural resource.
The Nasdaq Veles California Water Index (NQH20) provides enhanced transparency and innovative risk management solutions to the individuals and entities that rely on California water markets to align supply and demand.
Water is critical to our daily lives and empowers industries ranging from agriculture production to manufacturing. NQH20, the first of its kind index, provides a benchmark on the spot price of water in the state of California. The unparalleled transparency of this index fosters greater price discovery and opens the doors for the creation of new tradable financial instruments to serve the needs of the California water market.
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The Nasdaq Veles California Water Index (NQH20) provides enhanced transparency and innovative risk management solutions to the individuals and entities that rely on California water markets to align supply and demand.
Water is critical to our daily lives and empowers industries ranging from agriculture production to manufacturing. NQH20, the first of its kind index, provides a benchmark on the spot price of water in the state of California. The unparalleled transparency of this index fosters greater price discovery and opens the doors for the creation of new tradable financial instruments to serve the needs of the California water market.
Key Benefits
First-of-its-Kind
New index designed to track the spot rate price of water, with the goal of representing the current valuation of water as determined by water entitlement transactions.
Transparent
Supports price discovery and allows for the creation of a tradable financial instrument to manage financial exposure associated with water supply risk.
Invest in the Future
Futures on the Nasdaq Veles California Water Index are available for trading through CME Group. The NQH20 futures are an innovative tool to provide agricultural, commercial, and municipal water users with greater transparency, price discovery, and risk transfer, which can help to more efficiently align supply and demand of this vital resource.
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Discover the Market
Water market transactions involve the sale or lease of a wide range of ownership interests in water. A water right entitles the owner to divert or pump water from rivers, streams, and groundwater basins. Water rights are the most commonly traded category of ownership interest. Other commonly traded entitlements include shares in groundwater banks, surface reservoir storage rights, and entitlements to treated wastewater.
The overall size of water markets in the western U.S. is relatively small compared to other more commonly traded natural resources, however, given the relative scarcity of water supply, the region has seen the creation of nascent, but rapidly growing markets for the transacting of water rights. Water trading occurs in every western state, with more than 20 distinct regions where market activity routinely occurs.
California, particularly the Southern part of the state, is the largest market by volume and value. The value and volume of water traded annually in California is nearly four times that of other states. Other prominent markets are in the Front Range of Colorado, Arizona, and Central Texas (near Austin and San Antonio). These markets have formed at local and regional levels in response to a variety of market conditions, public policy, and ultimately the need to supply water for growing and changing demands.
Putting a Price on Water
Prices reflect the commodity value of water at the source and do not include additional costs associated with transportation or losses. Water price data is:
- Aggregated from the five largest and most actively traded markets in California
- Priced weekly in US$ per Acre Foot ($/AF), the prevailing market price for water transactions
- Sourced weekly from Waterlitix™ – a pricing and market information database developed and maintained by WestWater Research
Estimates in the table below are based on total volume transacted across the western U.S. market over the past 10 years. Demand from the agricultural sector has exhibited the largest growth, with purchases doubling over the past 10 years. This growth has largely been driven by the expansion of high valued specialty crops within California.
A Fresh Approach
The NQH2O is responsive to the supply and demand conditions within the underlying physical water markets due to the fact that it is entirely reflective of the transactions occurring in those same markets. In periods of dry hydrological conditions* and limited supply of water**, the index responds to the upward pressure on price. The same relationship holds true in periods of wet hydrological conditions and excess supply of water.
A widely followed measure of hydrology is the Palmer Drought Severity Index (PDSI), which uses readily available temperature and precipitation data to estimate relative dryness. Falling PDSI values, indicative of drier hydrological conditions, typically coincide with a decrease in the supply of water, an increase in the demand for water, and thus an increase in the prevailing market price for water.
*When the Palmer Drought Severity Index is negative
**When the State Water Project Allocation line nears the bottom of the chart
WestWater’s Waterlitix™
Our Partners
Veles Water
Veles is a financial products company specializing in water pricing, water financial products, plus water economic and financial methodologies. Veles developed the original concept for water price indexing and is the co-creator of the NQH2O Index methodology along with Nasdaq.
Our Partners
WestWater Research
In 2018 Nasdaq partnered with WestWater Research. WestWater is the leading economic consulting firm in pricing, valuation, and transaction advisory services for water rights and water resource development. WestWater’s Waterlitix™ provides the transaction data utilized in the calculation of NQH2O.
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FAQ
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- Tracks the spot rate price of water in the state of California
- Represents current valuation of water as determined by water entitlement transactions from California’s surface water market and four adjudicated groundwater basins
- Is responsive to the supply and demand conditions within the underlying physical water markets
- Aims to deliver enhanced transparency and innovative risk management solutions to the individuals and entities that rely on water markets to align supply and demand
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- Water market transactions involve the sale or lease of a wide range of ownership interests in water. A water right entitles the owner to divert or pump water from rivers, streams, and groundwater basins
- Water rights are the most commonly traded category of ownership interest. Other commonly traded entitlements include shares in groundwater banks, surface reservoir storage rights, and entitlements to treated wastewater
- The overall size of water markets in the western U.S. is relatively small compared to other natural resources that are more commonly traded
- These markets have formed at local and regional levels in response to a variety of market conditions, public policy, and ultimately the need to supply water for growing and changing demands
-
- Prices reflect the commodity value of water at the source, and do not include additional costs associated with transportation or losses
- Price data is aggregated from the five largest and most actively traded markets in California
- Priced weekly in US$ per Acre Foot ($/AF)1, the prevailing market price for water transactions
- Water price data is sourced weekly from Waterlitix™ – a pricing and market information database developed and maintained by WestWater Research
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- Given the relative scarcity of water supply, the Western United States has seen the creation of nascent, but rapidly growing markets for the transacting of water rights
- Water trading occurs in every western state, with more than 20 distinct regions where market activity routinely occurs
- California is the largest market by volume and value, followed by Colorado, Arizona, and Texas
- The value and volume of water traded annually in California is nearly four times that of other states
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- The agricultural sector is the primary stakeholder of traded water transactions across western state water markets. Approximately 67% of total volume transacted over the past 10 years has involved a seller from this sector
- The next major stakeholders are municipalities at 16%, followed by industrial rights at 8%, and investor owned rights at 4%
- On the demand side, municipalities are the largest buyer category with 44% of total market, followed by environmental buyers at 26%, and the agriculture sector at 15%
- Demand from the agricultural sector has exhibited the largest growth, with purchases doubling in the last 10 years. This growth has largely been driven by the expansion of high valued specialty crops within California
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- In periods of dry hydrological conditions and limited supply of water, the index responds to the upward pressure on price. The same relationship holds true in periods of wet hydrological conditions and excess supply of water
- A widely followed measure of hydrology is the Palmer Drought Severity Index (PDSI)4, which uses readily available temperature and precipitation data to estimate relative dryness
- Falling PDSI values, indicative of drier hydrological conditions, typically coincide with a decrease in the supply of water, an increase in the demand for water, and thus an increase in the prevailing market price for water