December 15, 2020

By Greg Mellinger, CEO, HighQuest Partners, LLC

Twenty-twenty has seen expanded offerings from agricultural investing powerhouses with assets over $1 billion AUM, smaller funds, and new entrants. More than 100 follow-on and newly-formed farmland, infrastructure, PE/VC, credit, REIT, commodity, and natural capital funds were introduced and/or closed this year as reported in GAI News. Last week, we witnessed the establishment of an agricultural investment asset class offering a new level of liquidity, the Nasdaq Veles Water Index that started trading on CME Group’s futures exchange on December 3, 2020 as NQH2O. 

A common thread across the tapestry of ag investing opportunities globally is the reliance on affordable, accessible, and dependable water resources for their crops, livestock, and processing operations. Until this month, water users in California, one of the most valuable and climate sensitive regions,  were unable to neither hedge their risks nor make investments directly into water futures. This just changed.

The development of this index by Veles Water’s CEO Lance Coogan and his partners WestWater Research, NASDAQ, and CME Group took years to create. Coogan had successfully launched and sold a number of innovative derivatives and carbon financial products since the mid 1990s. Said Coogan, “Water is arguably our most precious commodity…” Yet, he “found it hard to believe that no one had quantified water prices and its value previously.”  Thus began his journey to bring transparency to the price of water and liquidity to investors and end users who will utilize the NQH2O product. Water buyers will be able to hedge their prices, and thus the risk of water, up to two years into the future. This will bring more certainty to owners and investors of irrigated farms and other agricultural assets reliant on water use and input costs. It also will quench the thirst of those concerned about, and impacted by, climate change.

Two large water users in the index’s covered region are Maricopa Orchards and Elevated Ag, a family farming group and new agricultural investing entity respectively, located in Fresno, California. Kevin Assemi is Maricopa’s former CEO, and a current owner. He is also manager of Elevated Ag and an elected member of the regional Westland’s Water Board. Assemi held early conversations with Coogan about the development of this product. “Westwater Research is a specialist water analytics firm based in Colorado. They expanded to California after Lance contacted them and started aggregating data on water prices and volumes in the state which resulted in the Waterlitix™ index which is the exclusive data provider for the Nasdaq-Veles California Water Index and which is then used by CME Group for the Futures product.” According to Assemi, California has the “most advanced water infrastructure in the world and is able to move water from northern California to San Diego.” He feels that investment groups such as Elevated Ag will appreciate having an investment product of this type that is not correlated to most markets.

Patrick Wolf, head of product development for Nasdaq agrees with Assemi’s assessment. Wolf commented that Nasdaq’s participation was motivated by two factors;  first, California’s market is a robust one in terms of its scale (reaching over $1 billion in water purchases in dry years) and has a high concentration and total value of agricultural operations; second, this index is highly relevant for farm owners, managers, and investors keen to have a real-time transparent tool for their operations and investments.

The gates have opened for agricultural owners and investors in California who now have access to a tool that helps them manage their water price risk and its impact on their investments. While the trading flows trickled in the first week, the Nasdaq Veles Water Index team expects volumes to steadily grow as more stakeholders recognize the implications of this new risk management/hedging and investing tool. As 2020’s flood of new ag investing opportunities draws to a close, the future will likely yield many more innovative approaches to assisting farmers, funds, and investors alike.

About the Author:
Greg Mellinger founded HighQuest Partners, LLC. in 2000 as a strategy and investment consulting boutique. HighQuest’s offerings have expanded dramatically and now include media and event platforms for the agricultural and food sectors. HighQuest products include Global AgInvesting, Women in Agribusiness, Organic & Non GMO Forum, Ag Club, and events and publications, including the most recently published, GAI Rankings & Trends Report .