The Setting

The Chicago Mercantile Exchange, a.k.a. the Merc. What began as the Chicago Butter and Egg Board in 1898 is now a labyrinthine network for futures trading in sectors including agriculture, real estate, and metals. Futures trading — no shame in not knowing! — is the practice of betting on the future price of commodities in order to manage financial risk. It’s basically fantasy football for capitalists.

The Key Players

Farmers, municipalities, and us People who need water to survive and/or stay in business. So, all of humanity.
CME Group The financial services giant that owns the Merc, the Chicago Board of Trade, the New York Mercantile Exchange, and more. It decides what commodities are traded at the Merc.
Water rights activists Including Pedro Arrojo-Agudo, the United Nations’ special rapporteur on the human rights to safe drinking water and sanitation. (Try putting that on a business card.)

The Crisis

Thanks to global warming, our water supply is declining. According to UN research, by 2025, two-thirds of the global population will face water shortage to some degree, with 1.8 billion people living in “absolute water scarcity.” And only last year did California emerge from an eight-year drought, which resulted in massive crop losses. It also resulted in Amy Poehler getting fined for using 170,000 gallons of water in two months, which is neither here nor there.

This is indisputably a problem for, you know, humanity at large. But those dealing most immediately with the issue are farmers and townships whose existence hinges on an affordable water supply. As available water goes down and demand stays constant (because we literally always need water to survive), prices rise. How can municipalities and businesses budget for water as the world gets hotter?

The Dispute

The CME Group believes it has an answer: futures trading. As of December, water has joined gold, oil, wheat, and bitcoin on the Merc as a traded commodity. Now cities and farmers can buy futures in California’s water, meaning they can hedge against (or bet on) rising water prices out west, based on the Nasdaq Veles California Water Index, which tracks the current market price of the five largest water supplies in the state. Proponents see this as a tool to help manage water supply risk, a way of softening the blow to farmers and cities as water gets scarcer. So far, only the Golden State’s water supply is being traded; it’s sort of a test run.

OK, great! Wait, no. The thing is, traders, banks, and hedge funds can also bet on California’s water supply. That means commodities traders could financially benefit from another West Coast drought — and from the country’s and the world’s vanishing H2O, too, if the water supplies of other states and nations are added to the CME. Water activists are extremely not into the new development at the Merc. “You can’t put a value on water as you do with other traded commodities,” Arrojo-Agudo told the UN in December, describing the water futures market as an existential threat to water as a human right. Other climate justice activists have described the futures contracts as a cynical attempt to profit off scarcity. No getting around it: This is dark.

The Stakes

Is water futures trading an opportunity for farmers and municipalities to plan their budgets in an uncertain time? Or is it simply late-stage capitalism leeching our climate’s final gasps for breath? Perhaps both; it’s too soon to tell.