Lower Rio Grande Water Market Indicator: Will Trading Continue to Increase?

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



Activity continued to increase in the second quarter of 2017, with 50 transfers of irrigation water totaling 13,171.67 AF—more than 2-1/2 times the 5,036.11 AF traded in the first quarter of 2017 and well above the volume of 10,359.84 AF traded in all of 2016. By comparison, transfers for the second quarter of 2016 only totaled 942.4 AF, and in the second quarter of 2015 (which saw the start of the record-setting precipitation), had no transfers at all.



The current prices for the 2nd quarter 2017 were 25.58/AF which have eased a bit from the 1st quarter prices of $27.61/AF. This is generally consistent with the second quarter 2016 prices which ranged from $20/AF to $30/AF. Current prices are slightly higher than the third and fourth quarters of 2016, when they averaged $25.08/AF—but they are 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 second quarter, there were three transfers for municipal water totaling 210 AF. Prices ranged from $50/AF to $65/AF, with an average price of $57.86/AF.

Activity for industrial use and mining is also limited. The second quarter saw one lease of 134 AF for mining purposes at prices of $1,000/AF.

The Lower Rio Grande Valley saw unusually hot temperatures during the spring and early summer, and precipitation events brought a total of only 25% to 75% of normal rainfall amounts, depending on the region. With forecasters expecting the hot, dry conditions to continue, expect trading activity and prices to rise.

Written by Marta L. Weismann