Lower Rio Grande Water Market Indicator: Dry Conditions May Resume This Year

Demand for Lower Rio Grande water created a lease market in south Texas.  Lease prices vary by use, with agricultural water users typically paying lower rates per acre-foot because they have lower consumptive use of water.

Municipal users have priority in the system, with a municipal reserve of 225,000 AF reestablished each month.  Excess water is allocated to irrigators, who must have a balance available in a revolving account to take delivery of water.  The long-term average allocation for Lower Rio Grande contracts is 2.5 AF/acre. 

Between 2009 and early 2011, water supplies were abundant, so the watermaster was able to provide full allocations (4 AF/acre), and during flood operations at the Falcon and Amistad Dams, the Rio Grande Watermaster provided “free water” that does not count against contractors’ accounts.  As a result, leasing activity for irrigation water was sparse during that time.
Heavy rain and flooding in the spring of 2015 led to a similar situation depressing leasing activity for 2015. The low level of activity has continued in 2016 with only 10,359.84 AF of irrigation water changing hands over the year—less than 10% of the annual volume for 2012, the highest year on record. Of the total volume transferred in 2016, there were 17 leases totaling 4,748.44 AF in the third quarter—compared to 2,045.20 AF in the third quarter of 2015 and 6,768.40 AF in the third quarter of 2014. In the second quarter of 2016, there were nine leases for irrigation water totaling 942.4 AF.



Activity also remained low in the fourth quarter of 2016, with three transfers of irrigation water totaling 1,004 AF—compared to 987 AF in the fourth quarter of 2015 and 21,557 AF in the fourth quarter of 2014.



Prices for irrigation continue to ease. During the third and fourth quarters of 2016, prices ranged from $20/AF to $30/AF. The average price dropped from $28.73/AF in the second quarter to $25.08/AF in the third quarter and $20.04/AF in the fourth quarter. In 2015, the average prices were $30/AF in the third quarter and $35.78/AF in the fourth quarter.

Because municipal users have priority in the system, the market for leases of municipal water is usually thin. There were five leases for municipal water totaling 255 AF at an average price of $56.47/AF in the third quarter and two leases totaling 150 AF at an average price of $57/AF in the fourth quarter.

Activity for industrial use and mining is also limited. The third quarter saw three leases for industrial purposes totaling 26 AF at a price of $100/AF. There were no leases for industrial purposes in the fourth quarter and no leases for mining purposes in either the third or fourth quarter.

With meteorologists tracking a La Niña event in the Southern Pacific, dry conditions may resume this year. When dry conditions resumed after a previous wet period, so did leasing activity. The market peaked in the 4th quarter of 2012 with irrigation leases totaling 51,183 AF for just that quarter, and trading remained high—rivaling or exceeding the amount of activity seen during the drought of the late 1990’s.

If past behavior is the best indicator of future behavior, a similar pattern can be expected this time. However, a new question has emerged regarding whether Mexico’s repayment of its water debt under the Rio Grande Compact shores up supplies enough to impact market activity. Will higher leasing activity and higher prices return with drier hydrologic conditions?

(For more on Mexico repaying its Rio Grande Compact water debt, see “Mexico Retires Rio Grande Water Debt in Full,” JOW March 2016).


Written by Marta L. Weismann