Hedging Water Risk
With low water allocations in many areas of the western U.S. this year, some farmers are having to pay huge premiums to get the water necessary to produce their crops. This is one of the many risks that growers need to manage both financially and agronomically. One tool that might help some of them manage the financial side of the risk is the Nasdaq Veles California Water Index, says Veles CEO Lance Coogan.
Coogan… “The index is made up of four groundwater basins and the surface water market. So there are physical transactions that take place in those respective markets, they are all recorded. And it is those transactions, so the actual price, is what is represented in our price. It's a volume weighted average of the actual trades that take place in the market.”
Coogan says this is not a marketplace to buy and sell physical water shares, but instead an index to serve as a tool to hedge price risk in a year like this one.
Coogan… “The price is nearly doubled. You would have made that amount of money. And that amount of money now gives you the extra cash to go and buy the water in the market. Because that's the price of the water in the market. So you've made that money to be able to pay for that water. You've got the excess cash to be able to pay the excess price that it has moved.”
Learn more on the Nasdaq website.