California Agricultural Water Prices Pressured by Limited Supplies in 2014

2014 was an astonishing year for water supplies.  The impossible happened when the California Department of Water Resources (“DWR”) established a State Water Project (“SWP”) allocation of less than 7%.  The allocation went from 5% to zero percent and back to 5%—contradicting the DWR’s water supply availability study, which concluded that there was no chance of an allocation less than 7%. (For further discussion of the DWR water supply availability study, the role of hydrologic conditions and water supply availability matters, see “Rethinking California Part III: Back to the Drawing Boards on Water Supply Availability?” Hydrowonk Blog, June 9, 2014).

Conditions were similarly dire for the Central Valley Project (“CVP”), where agricultural water users, both north and south of the Delta, received a zero percent allocation.  Growers increased groundwater pumping or turned to water markets to meet their water supply needs.

The water available on the market came primarily from senior water rights and excess local supplies that were available due to fallowing, and the limited supplies undoubtedly impacted prices.

In the Central Valley, prices for one-year leases ran 2.2 to more than 3 times the 2013 prices.  The San Luis & Delta Mendota Water Authority (“SLDMWA”) leased 122,851 AF—48,492 AF under the Yuba Accord and 74,359 AF as market transfers.  The market transfers were all priced at $500/AF, and all of the water came from Sacramento River Settlement Contractors.  Most of SLDMWA’s 2013 leases were completed at a price of $190/AF.

Likewise, Westlands Water District, an SLDMWA member agency, estimates its 2014 lease volume to be between 75,000 AF and 100,000 AF, with prices ranging from $800/AF to $1,100/AF.   In 2013, Westlands leased 158,189 AF at $360/AF, and the average from 2000 to 2013 is 97,891 AF at $198/AF.

In Kern County, Buena Vista Water Storage District, an SWP contractor, auctioned 12,206 AF of groundwater that was available due to an overwhelming response to a fallowing program implemented by the district.  The minimum bid was set at $600/AF, and reports indicate that winning bids had prices ranging from $1,100/AF to $1,250/AF.  The buyers were all growers of permanent crops.

Written by Marta L. Weismann