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Lower Rio Grande Water Market Indicator: Expect Trading to Resume

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, and the watermaster could 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.

Record-breaking rainfall and flooding in the spring of 2015 led to a similar situation depressing leasing activity for 2015. The low level of activity continued in 2016, when the March-to-May rainfall totaled 200% to 300% of average for much of the valley. Only 10,359.84 AF of irrigation water changed hands over the year—less than 10% of the annual volume for 2012, the highest year on record. Autumn and earlier winter 2017 was hot in the Rio Grande Valley, with record or near-record temperatures throughout the season. A major storm in early October brought temporary relief from the moderate to severe drought conditions in the region, and another storm in mid-November brought a deluge—with some areas seeing as much as three times the monthly average rainfall in just a few hours. While there was little meaningful precipitation otherwise, these two storms brought enough precipitation to break the trend of a continuing pick-up in trading.



Activity decreased in the fourth quarter of 2017, compared to both the earlier quarters of 2017 and the historic average. The fourth quarter saw 17 transfers of irrigation water totaling 6,202.24 AF—compared to 16,724 AF traded in the third quarter, 13,171.67 AF in the second quarter, and 5,036.11 AF traded in the first quarter. Over the last 10 years, fourth quarter volumes ranged from 0 AF (no trades) to 51,183.12 AF, with an average of 10,505.78 AF.

The previous two years, however, saw lower levels of activity.  Transfers totaled 1,004 AF in the fourth quarter of 2016 and 987 AF in the fourth quarter of 2015.



 Prices for the fourth quarter of 2017 averaged $21.87/AF—which is a significant drop from the previous quarters. Average prices were at $27.18/AF in the third quarter, $25.58/AF in the second quarter, and $27.61/AF in the first quarter of 2017. Current prices are low for fourth quarter prices. The average fourth quarter price over the last 10 years is $28.01/AF, and the last two years saw fourth quarter prices at $20.04/AF (2016) and $35.78/AF (2015).

Because municipal users have priority in the system, the market for leases of municipal water typically is thin. In the fourth quarter 2017, there was an unusually large amount of municipal activity with 12 transfers totaling 6,880 AF. Prices ranged from $14.40/AF to $65/AF, with an average price of $32.87/AF.

Activity for industrial use and mining is also limited. The fourth quarter saw no leases for mining purposes.

The Lower Rio Grande Valley saw unusually hot temperatures and limited precipitation through most of 2017. Forecasters have near certain expectations for La Niña conditions to persist throughout the winter—which would lead to warm temperatures and worsening drought. Expect trading to resume.

Written by Marta L. Weismann