Water Market Wrap
The Progressive Agriculture caravan rolled into Melbourne recently to sit on a panel discussing water at the launch of Aither’s 2015/16 water markets report and outlook into the 2016/17 season. Their report is well worth a read and can be found here: http://www.aither.com.au/water-markets-reports/.
Especially interesting was their outlook for southern Basin allocation prices in 2016/17:
“Based on average and wet allocation scenarios adopted from state authority outlooks and assuming median in-crop rainfall across the remainder of the 2016-17 year, our model estimates an annual average price of approximately $170 per ML under average conditions and $135 per ML under wet conditions. If rainfall for the remainder of the year is substantially higher than median, annual average prices for water allocations could be lower than $100 per ML in 206-17. A severe lack of rainfall for the remainder of the water year would need to be observed to lift annual average prices above $200 per ML for the 2016-17 water year.”
As for this season’s DPI allocations and markets currently, there are a few confusing signals around. Some dams are full but it doesn’t necessarily translate into allocation immediately. The allocation probabilities DPI released for the Murrumbidgee reflect dam airspace issues that need to see carryover water used before allocation can build to its maximum (DPI says we won't have more than 3 per cent extra by 1 November under any circumstances). The low temp water prices in the Bidgee either indicate that the market doesn’t see this as a major issue longer term or there will be a shock when allocations hit a speed bump over the next month or two.
There have also been some confusing signals about Murray GS allocations. The MDBA weekly report of 19 August made the following key observation:
“Even if Hume reservoir fills in coming weeks, the water in storage able to be allocated by NSW and Victoria will be constrained until significant further inflows are captured in Menindee Lakes and Dartmouth Reservoir. However, in the coming weeks and months, any water demands which are met from tributary inflows downstream of Hume Dam will reduce the reliance on water held in storage and may thereby allow NSW and Victoria to further increase allocations.”
This indeed happened. The significant Barmah Millewa account borrow was triggered and paid in no time, with the last allocation effectively delivering 20 per cent to irrigators in a fortnight. Given contstrained Dartmouth inflows, this is much in excess of where many informed observers thought we might get. The dark art of determining the effect of tributary inflows on allocations remains elusive for market participants.
Prices in both valleys are pretty low and may be slight unders at present, but if it keeps raining buckets then the market will have got it right.