Water prices to plummet in Murray-Darling Basin

Posted 12 September 2016

Murray-Darling BasinThe price of water traded in the Murray-Darling Basin is tipped to decrease dramatically this financial year in response to strong winter rainfall.

Aither published its annual water markets report and Director Chris Olszak said wet weather has seen southern Murray-Darling Basin allocation prices collapse from a peak of $300/ML in 2015-16. 

“As we looked into 2016-17, the forecasts were looking quite dire for water availability but there's been a lot of winter rainfall, which has turned around that situation completely – to the point where we've now got dams spilling,” he said.

Prices have softened even further than expected in the first two months of the financial year, now approaching levels not seen since late 2013-14.

“$170/ML was our estimate a couple of months ago, based on fairly average rainfall conditions, but what we've seen is much higher rainfall conditions and they're pushing the price back down. If high rainfall and inflows were to persist, prices could reduce further to around $100/ML, or lower,” Olszak said.

The fall in prices comes despite some upward pressure from changing irrigation demand in the southern Murray-Darling Basin.

“We've seen the emergence of cotton, and increased almond and other nut plantings, increasing the demand for water in some areas,” Olszak said.

“But we've also recently seen the milk price collapse and that may tend to put downward pressure on the allocation price.”

The fall in prices could boost water trade activity and volume in 2016-17, but the impact on total financial turnover is harder to predict.

“There's more water around so there may be greater volumes of trade, but at a substantially lower price, so there's a question mark about where the total turnover value of trade will be,” Olszak said.

In 2015-16, there was around $400 million of entitlement trade and around $260 million in allocation trade.

The fall in water prices and rise in availability should open up the options for irrigators as they plan for the coming year, Olszak said.

“This will be a major relief to a number of irrigators who were looking at the prospect of extremely low allocations for 2016-17,” he said.

“It's great news, particularly for those who are reliant on buying allocations, that there's going to be a bit more water around and it will take one element of pressure off, particularly for dairy farmers who are really struggling with the milk price situation at the moment.''

“But also for rice growers who should be able to grow a crop this year when they haven't over the last couple because they've been priced out of the allocation market.”
Some areas may face constraints for hydrological reasons and this may result in different prices across the southern connected MDB.

“Trade out of the Murrumbidgee will be constrained again this year,” Olszak said.

“And restrictions on trade from above the Barmah Choke on the Murray system to below the Barmah Choke, where all the horticulture and wine grapes are located, have become binding this year.”

The positive forecasts for 2016-17 come on the back of three dry years, which saw allocation prices rise, in some cases, by 200%.

The drastic turnaround shows the market is not only working, it's responding rapidly too, Olszak said.

“The market is a really useful tool for dealing with varying climatic conditions that we have in southern Australia,” he said.

For more information on the Murray-Darling Basin water market, visit the annual water markets report.