Dry conditions could see water prices climb back to $200 a megalitre or more by the end of the financial year, according to leading market consultants Aither.
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Price for water fell to close to $0/ML after record inflows into the southern Murray Darling Basin storages, but more recently jumped to between $75 and $135/ML as the new water year approached.
The Victorian irrigation season opened on Tuesday, August 15.
Aither Water Markets principal Ben Williams told a recent webinar irrigators were likely to enjoy another year of relatively low water allocation prices, due to the "excellent" water supply the basin would start the year with.
"With most major entitlements, at, or near full allocations, water supply is reasonably set for the year ahead - this provides plenty of certainty for irrigators, supporting the planting decisions of annual croppers, in particular," Mr Williams said.
Allocations in the southern Murray Darling Basin finished 2022-23 at the highest level in 16 years, at a total of 7942 gigalitres, or six per cent more than was allocated during the last wet year of 2016-17.
That resulted in allocations trading at sub-$0/ML prices during the June quarter.
Annually, that worked out at a weighted average price of $27/ML, 62 per cent lower than the previous financial year.
But he said the challenges of the last dry period were still "raw in the minds" of many irrigators.
"Indeed, many of them are still struggling to recover from it, to this day," he said.
"Whilst some irrigators will enjoy the security high allocations bring this year, others will pay $100-140 ML right now, just to take some risk off the table."
Prices had since bounced back, ahead of the season-opening.
The potential for Commonwealth buybacks could be influencing the current price, he said.
"The fall in entitlement prices would have been greater, if it had not been for the prospect of buybacks," he said.
"It's definitely a potential factor - the decline (in prices) we have had since February, has had the spectre of the Commonwealth in the background."
Markets were also likely to be "highly influenced" by the challenging economic conditions, such as the sluggish economy, low commodity prices and high interest rates.
But he said the main driver behind prices was the suggestion that Australia was facing an El Nino.
"Allocation prices are likely to remain below the long-term average, at least for this year, but the weather outlook to 2024-25 will have a strong influence on how the markets close out the year," he said.
"An average to wet outlook could see prices trimmed back towards zero, in June 2024, where an outlook that sees an extended El Nino would see prices climb to $200 or possibly more."
Buybacks were the "wild card" in the equation, he said.
"The question for entitlement markets now is what will the Commonwealth do regarding Basin plan water recovery," Mr Williams said.
"Under a two-year extension scenario, it's highly likely a significant market premium will be required in order to acquire the target volumes - even then it's going to be pretty challenging," he said.
"The timing and volume of recovery will be highly influential on the market."
If the government were to recover the full amount of water still required under the plan, it would lead to a 10pc decline in the consumptive pool and a 25pc increase in environmental entitlements.
"A recovery of this magnitude is likely to have wide ranging implications for markets," Mr Williams said
Meanwhile, the the Australian Competition and Consumer Commission has found regulated water charges varied substantially between the different states in the Murray-Darling Basin in 2021-22.
The ACCC's annual Water Monitoring Report 2021-22 showed wet conditions kept availability high.
The Murray-Darling Basin report monitors regulated water charges, compliance with the water rules by infrastructure operators, and 'transformation' arrangements that allow irrigators to convert an irrigation right into a standalone water access entitlement, held by the irrigator or traded to another person.
"The ACCC's report aims to keep stakeholders informed of the changes in regulated water charges and the irrigation market in the Basin, the largest and most complex river system in Australia," ACCC deputy chair Mick Keogh said.
As part of its water monitoring, the ACCC prepares 'typical bills' which estimate the annual charges that irrigators pay for different water entitlement and delivery scenarios from on-river (bulk) operators and irrigation infrastructure operators.
"Transparency helps water users understand the charges they are paying, water markets to work efficiently and policy makers to assess the impact of reforms to the regulatory framework," Mr Keogh said.
This report is structured by state and highlights that regulated water charges differ substantially between different Basin states, and that state government policies have a significant impact on on-river typical bills.
The wet conditions in 2021-22 allowed off-river infrastructure operators in the northern Basin, where annual crops such as cotton are common, to deliver 47 per cent more water compared to 2020-21.
In the southern Basin, where dairy and perennial horticulture crops are more common, off-river infrastructure operators delivered only one per cent more water in 2021-22 compared to 2020-21.
In Victoria, charges levied by Goulburn-Murray Water and Lower Murray Water rose by less than inflation since 2019-20, meaning they have fallen in real terms.
"Water storage levels were high in Victoria in 2021-22 and substantial rainfall kept demand for irrigation water down," Mr Keogh said.
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