Commodity prices, particularly for cotton and rice, are strong, and the trend towards higher value permanent horticultural production continues.
Looking ahead, strong opening allocations, a favourable rainfall outlook, and very full dams mean low water allocation prices are set to continue in 2022-23.
The good times for irrigators look set to last at least two years.
Aither has released their ninth annual Aither Water Markets Report summarising water trading activity and trends in the 2021-22 water year and providing insights into the outlook for 2022-23.
Aither’s Water Markets Advisory Lead, Dr Erin Smith, said wet conditions across the southern Murray-Darling Basin in 2021-22 increased water supply and reduced irrigation water demand. This double whammy saw water allocation prices tumble for the second year in a row.
After the drought broke in 2020, further rain in early 2021 led to high volumes of carryover and good early season allocations. Regular rainfall throughout 2021-22 also reduced irrigation demand.
Average allocation prices across the southern Murray-Darling Basin opened just above $120 per ML in July 2021. Prices held up in the first half of the water year, but at the end of summer, prices decreased quicky, closing below $20 per ML in June 2022.
“However, in 2021-22, the annual volume weighted average price for allocations across the southern Murray-Darling Basin was $71 per ML”, said Dr Smith.
Consistent with recent years, the trade constraints remained closed and created differences in water allocation prices between upstream and downstream systems. Prices in the lower Murray traded at a premium until the final weeks of the water year.
Looking ahead, “strong opening allocations, a favourable rainfall outlook, and very full dams mean low water allocation prices are set to continue in 2022-23. The good times for irrigators look set to last at least two years,” said Dr Smith.
Despite the wet conditions, prices for most major water entitlements in the southern Murray-Darling Basin started to increase again. Dr Smith said, “in 2021-22, the estimated total value of major entitlements in the southern Murray-Darling Basin was $30 billion, up 13% on last year. This record high in 2021-22 is due to heightened long-term interest in water entitlements and a lack of willing sellers. The market value of entitlements held by environmental water holders increased to $7.8 billion, up 12% on last 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.
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.
