Southern water markets tumble

Full allocation accounts, low usage and difficulty finding parking capacity for carryover have suppressed demand for water in southern markets.SOUTHERN Basin temporary markets have tanked. Full allocation accounts, low usage and difficulty finding parking capacity for carryover, have suppressed demand; while the anticipated re-opening of Murrumbidgee to Murray trade has also put downward pressure on prices. NSW Murray prices have fallen over 30 per centin a month, to $50 a ML, while the value of Murrumbidgee temporary water – now trading at $35/ML – has halved since Christmas.
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In late October the MDBA announced plans to deliver water owed to the Murray from the Murrumbidgee (around 100GL), commencing in January 2017. While the timing and volumes of inter-valley trade (IVT) requested by MDBA are subject to change, it is expected that such transfers will open Murrumbidgee to Murray trade within the next month.

With prices in the Murrumbidgee currently at $35/ML, a $20 discount to the NSW Murray and $30 below the Vic Murray market, prices will likely converge somewhere in the middle of the Murrumbidgee and Murray markets in February. Those in the Murray looking to capitalise on additional (and potentially cheaper) water will need to be quick as IVT openings have shut in justhoursin recent years.

Many irrigators are wary about buying surplus water after forfeiting carryover earlier in the season due to dam spills. Now, they are either sitting on their hands in the spot market and waiting for further depreciation or assessing forward water and carryover parking products as a means to mitigate spill risk next season. These products are fetching a significant premium relative to the spot market, reflecting the small amount of storage space available.

On the supply side, entitlement holders with large volumes of water relative to land are attempting to lock away reasonable investment yields on their licenses. With entitlement prices in the Victorian Murray pushing $2850/ML and $3500/ML in the Murrumbidgee, current spot market prices are delivering a meagre one to two per cent yield.

Full storages and full water allocation forecasts for the 2017-18 season also spell trouble for yield play investors. As a result, these participants are innovating with single and multi-year forward and lease offers, attracting a premium from buyers who want to minimise allocation risk and price volatility.

The first half of the 2016-17 water season has been an interesting one for Southern Basin irrigators.

Huge storage inflows last spring, inter-zone and inter-valley trade restrictions, the actions of state and federal environmental water holders, tanking dairy prices, co-op collapses and cheap dry feed, have combined to push water prices down.

However, the strengthening of the almondand table grape industries, complimented with the expansion of cotton, may help to bolster demand in the spot, lease and forward markets later this year and next.

H2OX is an exchange for the electronic trading of water entitlements and allocations.This story Administrator ready to work first appeared on Nanjing Night Net.

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