Lower Rio Grande Water Market Indicator: Will Activity Ease?

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,” which 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 of 2017 was hot and dry in the Rio Grande Valley, with above-average temperatures. Thunderstorms in July and August brought limited precipitation, while September saw precipitation vary widely, with some areas receiving near normal totals and other areas getting 10% to 30% of normal.  Overall, trading continues to pick up.



Activity increased again in the third quarter of 2017, with 43 transfers of irrigation water totaling 16,724 AF—compared to 13,171.67 AF traded in the second quarter of 2017 and more than tripling the 5,036.11 AF traded in the first quarter of 2017. By comparison, a total of 10,359.84 AF traded in all of 2016—with 4,748.44 AF of that amount trading in the third quarter of 2016. Transfers totaled 2,045.20 AF in the third quarter of 2015.



 Prices for the 3rd quarter of 2017 averaged $27.18/AF. This is an increase from the 2nd quarter prices of $25.58/AF, but is still slightly below the 1st quarter prices of $27.61/AF. Current prices are typical of third quarter prices. The average third quarter price over the last 10 years has been $26.64/AF, and the last two years saw third quarter prices at $25.08/AF (2016) and $30/AF (2015).

Because municipal users have priority in the system, the market for leases of municipal water is usually thin. In the third quarter 2017, there was an unusually large amount of municipal activity with 11 transfers totaling 3,780 AF. Prices ranged from $14.40/AF to $65/AF, with an average price of $44.19/AF.

Activity for industrial use and mining is also limited. The third quarter saw two leases of 20 AF for mining purposes at prices of $250/AF.

The Lower Rio Grande Valley saw unusually hot temperatures during the spring and summer, and precipitation events brought less-than-normal rainfall amounts in most areas. Forecasters expect cooler and wetter weather for the fall, but are uncertain about how conditions are sizing up for the winter. Expect activity to ease in the short term.


Written by Marta L. Weismann