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Lower Rio Grande Market Indicator: Market Remains Thin Following Period of Wet Hydrology

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 led to a similar situation this spring. Leases for irrigation water totaled 2,045.20 AF during the 3rd quarter—compared to no leases for irrigation water in the 2nd quarter and 29,115.00 AF in the 1st quarter. In the third quarter 2014, irrigation leases totaled 6,768.40 AF (see chart).

LRG indicator (12-2015)_FINAL

All of the irrigation water leases were priced at $30/AF, which is commensurate with the 1st quarter average price of $30.91/AF, but is below the 3rd quarter 2014 average of $44.07/AF.

Because municipal users have priority in the system, the market for leases of municipal water is usually thin. Activity for industrial use and mining is also limited. In the 3rd quarter, there were six leases of municipal water totaling 690 AF with an average price of $64/AF. A construction company leased 1 AF for industrial use at a price of $100/AF, and there were five leases totaling 2,035 AF for mining use with an average price of $151/AF.

When dry conditions resumed after the 2009-2011 wet period, so did leasing activity. The market peaked in the fourth quarter 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.

As drier hydrologic conditions return, expect activity and prices to return to a high level, especially if Mexico continues amassing a water debt under the Rio Grande Compact. (For more on Mexico’s failure to satisfy its obligation to provide an average of 350,000 AF per year over five-year cycles, along with discussion of a potential solution, see “Texas Laments Unreliable Water Deliveries from Mexico,” Rodney T. Smith, Hydrowonk Blog, February 11, 2015.)

Written by Marta L. Weismann