2016 Ricardo Water Markets Report

The 2015-16 water year in the southern Murray-Darling Basin was characterised by substantial price increases for water entitlements and allocations along with amplified variability in allocation prices. Price paths for both entitlements and allocations observed in 2015-16 continue recent trends of rapid increases from a low point in 2011-12. This trend has been driven primarily by decreasing water allocations to irrigators and the emergence of new high-value permanent planting developments,

• In 2015-16 the total value of commercial trade in the southern Murray-Darling Basin was approximately $400 million in entitlements and $260 million for allocations.
• In 2015-16, water allocation prices began around $200 per ML and peaked at about $300 per ML in November 2015 and then again at approximately $250 per ML in May 2016 before declining quickly to below $200 per ML at the end of the water year.
• Prices for some entitlement types (primarily higher reliability) increased by as much as 70 per cent between 2014-15 and 2015-16 – based on register data.

There has been a dramatic turnaround in climatic conditions in recent months. Aither expects lower prices for water allocations in 2016-17 compared to 2015-16. At the end of July 2016, water allocations across the southern Murray-Darling Basin were trading below $150 per ML. 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, the 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 2016-17. Lower entitlement prices observed at the beginning of 2016-17 could be the result of a natural correction following a period of rapid price increases. Observed declines in entitlement prices in Victoria, potentially driven by a recent deterioration in economic conditions in the dairy industry, may be representative of an overall market softening across the southern Murray-Darling Basin in the 2016-17 water year. However, interest from investors and large horticulturalists, is likely to underpin the market and limit the extent of price reductions.

Disclaimer:
This report features legacy branding from Aither Pty Ltd, which was acquired by Ricardo. While the branding reflects the pre-acquisition period, the content remains relevant and represents the high standards of expertise that continue under Ricardo.

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