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Lower Rio Grande Water Market Indicator: Will Spring Rains Depress Trading?

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.

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. So far, the spring of 2017 has brought the valley periodic rains and a “one-off” high precipitation event. The early part of the year, however, has also seen record high temperatures. Over all, trading seems to be picking up.



Activity increased in the first quarter of 2017, with 15 transfers of irrigation water totaling 5,036.11 AF—nearly half of the total volume traded in all of 2016. In the first quarter of 2016, transfers totaled 3,665 AF, and in the first quarter of 2015 (before the record-setting precipitation began), transfers totaled 29,115 AF.



During the first quarter of 2017, prices ranged from $25/AF to $30/AF. The average price increased to $27.61/AF from $25.08/AF in the third quarter of 2016 and $20.04/AF in the fourth quarter of 2016. Current prices, however, remain below the first and second quarters of 2016, when they averaged $29.42/AF and $28.73/AF. In 2015, average prices ranged from $30/AF to $35.78/AF.

Because municipal users have priority in the system, the market for leases of municipal water is usually thin. In the first quarter, there were no market transfers of municipal water.

Activity for industrial use and mining is also limited. The first quarter saw three leases for mining purposes totaling 276 AF at prices ranging from $250/AF to $1,000/AF, with an average price of $973/AF.

While this spring has seen well-timed periodic rains, meteorologists say there is a high level of uncertainty about what is in store for the remainder of the season. If the precipitation pattern ceases, expect trading activity and prices to rise.

Written by Marta L. Weismann