Months of heavy rain a welcome boost for farmers
Irrigators in the southern Murray-Darling Basin can look forward to lower water allocation prices over the next 12 months and perhaps even the following year after an earlier start to the season, fuller dams and an above-average rainfall outlook.
Irrigators have also come into the new season with a record amount of so-called “carryover water” – water unused in the previous year – according to the latest Aither Water Markets report.
“The good times for irrigators look set to last at least two years,” said Aither’s water markets advisory lead, Erin Smith.
The basis for that rosy outlook formed in 2020-21 when the drought broke two years ago. That set the scene for wet conditions last year across the southern Murray-Darling Basin, improving water supply and reducing irrigation water demand.
“This double whammy saw water allocation prices tumble for the second year in a row,” Dr Smith said.
Although large crops were planted – such was the water availability in 2021-22, arguably the best conditions for the last three decades – allocation prices came close to zero late in the season. The average price for allocations across the southern Murray-Darling Basin was $71 a megalitre last year.
If the three-month forecast for above-average rainfall from now until October holds, then by the time peak irrigation season arrives in summer, almost all water entitlements will have been fully allocated.
“If this happens, and we get another wet summer, allocation prices could stay low. If we get a more typical summer, allocation prices could hold steady or increase modestly from current levels, before decreasing towards the end of the year,” the Aither report noted.
Entitlement values remain firm
Although allocation prices have stayed low, the value of entitlements – the right to receive an allocation of water – have nevertheless held firm, as a result of long-term interest in such assets and a lack of willing sellers.
In 2021-22, the estimated total value of major entitlements in the southern Murray-Darling Basin rose 13 per cent to $30 billion. The market value of entitlements held by environmental water holders increased to $7.8 billion, up 12 per cent on the previous year.
“Entitlement market sentiment remains positive. Commodity prices, particularly for cotton and rice, are strong, and the trend towards higher value permanent horticultural production continues,” Dr Smith said.
“But questions are being raised about the extent to which entitlement prices can continue to increase given the current low yields, alongside an environment of increasing interest rates.”
