What a difference a year makes. Last year at this time the State of California was praying for El Nino to live up its hype. In a way El Nino did, and in other ways it did not live up its media hype. El Nino did break the spell of overly dry years that California had experienced for 4-5 years in a row, but it did not bring a outrageously abnormal weather event to the state. It was a good year for precipitation for most of the state, though not a great year. In California’s case, beggars certainly could not be choosers.
As we fast forward to present day, we can get a better sense of the lasting impact of last year’s El Nino. Though it did not bring headline grabbing flood stories, it did provide a strong run off from snow in the Sierra’s. This has put many reservoirs in a condition more in line with their historical normal water levels at this time of year. For instance, Don Pedro, a reservoir in the foothills of Central California is slightly above its historical average for the end of November. This is not only a good sign, it’s a great sign. As you can see from the graph below, the place where the reservoir’s level was last year (red line on the line chart) was much lower. Starting at historically low levels of water in the fall puts a huge amount of pressure on weather conditions to deliver in order for the summer crop growing season to have sufficient irrigation water. As we mentioned earlier El Nino delivered enough last year to provide a carryover of water reserves.
Reservoir holding levels are a major indicator of California’s ability to manage drought conditions. For one, they serve as a primary source of water for the numerous crops grown throughout the Northern and Central Valley in California. They also, through flood irrigation, replenish California’s aquaphors. This is important not only for agriculture, but for urban life. Many cities maintain their drinking water systems via aquaphor water extraction.
Though California is in a much better position water wise than it was last year, challenges remain. The growth in land used for agriculture, water storage limitations, a lack of new reservoir development, and environmental interests will continue to create a dynamic where if winter rain and snow levels falter, a situation where limited resources will clash with an unending list of resource needs.
Companies addressing drought issues do not have a bad footing because of this return to ‘normal’ conditions. Just because the headlines are gone does not mean that the agriculture industry or local governments are not taking steps to protect against future resource constraints.
Where to start as an investor? While not operating in California, PICO Holdings does operate in neighboring Nevada and Arizona. The company develops new sources of water for municipal and industrial use via water used for agricultural purposes, unappropriated water or the discovery of new water sources.
