Lower Rio Grande Water Market Indicator: Trading Down, Future Conditions Uncertain

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. Summer 2018 was wetter than usual, with a large flood in June. As for the fall, a wet September and a dry October led to slightly above average precipitation levels in the populated areas of the valley and well above average precipitation in the ranchlands.



Activity decreased in the third quarter of 2018, compared to the third quarter of 2017, but is above the previous quarter and the historic average.

The third quarter of 2018 saw 40 transfers of irrigation water totaling 11,373.33 AF—compared to 16,724 AF in the third quarter of 2017 and 10,647.22 AF in the second quarter of 2018. Over the last 10 years, third quarter volumes ranged form 472 AF to 43,906.78 AF, with an average of 10,613.98 AF.



 Average prices continue to ease. Prices for the third quarter of 2018 averaged $25.08/AF—which is lower than the previous quarter, when prices were $26.04/AF, and the third quarter of 2017, when prices were $27.18/AF.

Current prices are near the median of the range for the quarter. Over the last 10 years, third quarter prices have ranged from $16.58/AF to $44.07/AF, with an average of $26.67/AF and a median of $26.13/AF.

Because municipal users have priority in the system, the market for leases of municipal water is typically thin. Transfers of municipal water were unusually high in the third quarter, with 11 transfers totaling 5,725 AF at prices ranging from $14.40/AF to $65/AF. The average price was $21.26/AF.

In addition, there was a single one-year lease of 185 AF for multi-sector industrial use, which transferred at a price of $6,000/AF.

Activity for industrial use and mining is also limited. The third quarter saw one transaction for mining use. A total of 1,000 AF was transferred at $150/AF.

Seasonal conditions provided a reprieve from drought. However, conditions for the winter are uncertain, with forecasters having low confidence in projects for both above normal precipitation and the drier ridge that caused severe wildfires elsewhere in November. Expectations for market activity in the near future are tied to how the winter season actually plays out.


Written by Marta L. Weismann