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Lower Rio Grande Water Market Indicator: Trading Picks Up

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. While forecasts projected a hotter and drier spring than usual, most of spring 2018 saw conditions near average. Water storage in Falcon and Amistad Reservoirs, however, remains low, prompting calls for conservation and driving trading.



Activity increased in the second quarter of 2018, compared to the previous quarter, but was below the second quarter of 2017, and the historic average.

The second quarter of 2018 saw 51 transfers of irrigation water totaling 10,647.22 AF—compared to 7,126 AF in the first quarter of 2018 and 13,171.67 AF in the second quarter of 2017. Over the last 10 years, second quarter volumes ranged from 0 AF (no trades) to 31,793.79 AF, with an average of 9,056 AF.



Prices for the second quarter of 2018 averaged $26.07/AF—which is higher than previous quarter, as well as the second quarter of 2017. Average prices were $24.56/AF in the first quarter and $25.58/AF in the second quarter last year.

Current prices are on the low end of the range for second quarter prices. Over the last 10 years, second quarter prices have ranged from $24.89/AF to $33.19/AF, with average of $27.69/AF and a median of $29.04/AF (excluding any quarters in which no trades occurred).

Because municipal users have priority in the system, the market for leases of municipal water typically is thin. In the second quarter, there were three transfers of municipal water totaling 290 AF with prices ranging from $50/AF to $65/AF. The average price was $54.66/AF.

Activity for industrial use and mining is also limited. The second quarter saw one transaction for mining use. A total of 134 AF was transferred at $1,000/AF.

The region saw some unusually high precipitation levels in the early summer, but high heat and high-pressure ridge threaten to put the Lower Rio Grande Valley back into drought conditions. Expect trading to remain high.


Written by Marta L. Weismann