Going back to my childhood, I remember having an odd fascination with weather. I love all types of weather, nut I remember particularly loving the wind and rain. There was one year when we went through El Nino, and we had abnormal amounts of rain here in California. It was a great change at first but quickly became annoying because it got too much in the way of playing sports and outdoor activities. However, with the way things are right now in this part of the country, most people would welcome a year of extra rain.
The Need for Water
It’s hard for the rest of the country to understand the devastating need for water because most of the U.S. has an abundance of water. In fact, if there was a way to transport the excess water from other parts of the country to the southwest, localized droughts wouldn’t be a problem. However, this is exactly the problem. There is no efficient way to transport enough water thousands of miles to satisfy the needs of California, in particular.
The southwest right now, is dealing with one of the worst droughts ever recorded. The only difference is that now this area is more populated than ever. The state that took the hardest hit is California. As of now, nearly 60 percent of the state is officially in an “exceptional” drought — the highest level, above “severe” — and meteorologists are seeing no immediate change in a relentlessly dry forecast.
Now, across California’s vital agricultural belt, nervousness over the state’s epic drought has given way to alarm. Streams and lakes have long since shriveled up in many parts of the state, and now the aquifers — always a backup source during the region’s periodic droughts, are being pumped away at rates that scientists say are both historic and unsustainable.
A study done at UC Davis, estimated that 5.1 million acre-feet of water will be pulled from the state’s underground reserves this year. This is a volume roughly equivalent to the storage capacity of Lake Shasta, the state’s biggest reservoir and third-largest lake after Lake Tahoe and the Salton Sea. The big question of course is whether the elaborate infrastructure built to deliver water to the state’s 38 million residents and 27 million cultivated acres may not survive the challenge, new research suggests.
The Biggest Hits
The biggest hits right now are being taken on the farming communities in central California. When it comes to drinking water, only 1-2% of the water actually goes towards what people need to have to drink. Some estimates have our agricultural uses for water taking up nearly 80% of the state’s water.
The agriculture in California will get the brunt of the lack of water that California just isn’t getting. The costs to water crops will likely sky-rocket, driving the price of food up. The real question is going to come down to who owns the rights to the water, and there are water companies out there that will likely be able to charge significantly more for water due to the shortage. The trickle down affects could potentially be felt by everyone. This will be dependent on when California gets relief from the dry weather and how drastic things get up until then.
The Perfect Storm
Being able to combine investing with the weather is the “perfect storm” scenario for me. There are actionable steps that investors can take to be one step ahead of a water crisis which is to have investments in water companies tied to agriculture. One company that is benefiting and will be positioned to continue to benefit from this drought is Limoneira Company, trading under ticker symbol LMNR. This is a partial bet, speculating on a continued drought that will drive up prices and profits. Water is something that does not have a free market price at the moment, the question will be if things get bad enough, will this be cause for the free market to begin to price water. The cost of water could double and triple if this became a reality. The potential of a significantly wet winter would be the equalizer in this investment idea.
We will be presenting our top water pick in our upcoming report which will be part a big announcement that we will have in two weeks. Looking forward to enhancing your user experience here at CrushTheStreet.com
Chief Editor at CrushTheStreet.com