Low rainfall brings ups and downs in southern Murray-Darling Basin water prices
Water prices in the southern Murray-Darling Basin reached record-breaking highs and lows in 2019-20, a result of fluctuating weather patterns in the region, according to a recent report from Aither.
Released last week, the annual Aither Water Markets Report summarises water trading activity and trends in the southern Murray-Darling Basin (MDB) in an effort to provide useful analysis and insight for improved decision-making.
Key elements of the 2019-20 report include analysis of record-breaking water price fluctuation in the MDB, which Aither Water Markets Report Director Chris Olszak said were a result of consecutively low rainfall over three years, followed by a timely downpour.
“Extremely tight water supply conditions and some of the highest water allocation prices since the Millennium drought made 2019-20 a challenging year for most irrigators in the southern Murray-Darling Basin (MDB),” he said.
“2019-20 was the third dry year in a row. Demand from permanent horticulturalists to secure water, combined with binding trade constraints, led to record-breaking water allocation prices. Prices were pushed as high as $970 per ML in the lower Murray.”
Prices then dropped by 70 per cent to as low as $195 per ML, the largest recorded price decrease in the second half of any water year since 2009-10.
“The subsequent collapse in water allocation prices was driven by timely in-crop rainfall and market optimism buoyed by a shift towards more positive rainfall outlooks,” Olszak said.
Eye on the future
Looking to 2020-21, Olszak said the system is precariously balanced; while outlooks are looking more promising and inflows have been improving, follow-up rainfall is urgently needed.
“Without decent winter and spring rainfalls, considerable demand from winter croppers needing to finish off crops may combine with demand from permanent horticulturalists looking to secure their water for subsequent years,” he said.
“If this happens, high allocation prices are likely again this season. But good rainfalls over the last week are now much more promising for lower prices necessary for summer cropping programs.”
The report states that prices in the lower Murray are expected to be the highest of all trading zones and large price differentials may come again in 2020-21.
The paper also highlights entitlement markets, which Olszak said have increased for the seventh consecutive year.
Although the Aither Entitlement Index decreased 6 per cent in the second half of the year, the total market value of water rights in the southern Murray-Darling Basin reached a record $26.3 billion, increasing by almost $4 billion the year prior.
Olszak said the long-term outlook for entitlement markets remains strong, but the uncertainty surrounding the economic ramifications of the COVID-19 pandemic and regulatory uncertainty will likely influence prices for 2020-21.
For more information, access the full report here.