Lower Rio Grande Market Indicator: Wet Hydrology Stifles Market

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. There were no leases for irrigation water during the second quarter (and just five transactions for other uses).

Click to enlarge

Click to enlarge

Prior to the drop-off in activity, prices for irrigation water ranged from $30/AF to $40/AF, with most water trading at the lower end of the range.  The average price for the first quarter 2015 was $30.91/AF.

When dry conditions resumed after the 2009-2011 wet period, so did leasing activity. The market peaked in the fourth quarter 2012 with a total of 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.

When the current wet conditions end, 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