In the second Water Markets note for the 2017-18 year, Marsden Jacob analysts Rod Carr and Simo Tervonen said they believed Southern Connected allocation prices were expected to stay below $200/Megalitre (ML) or above over summer. That would only change with a long period of particularly hot and dry conditions.
“This is also supported by intra-season forward market contracts in the intermediary exchanges being written at $140-160 per ML for summer delivery,” Mr Carr and Mr Tervonen found. But they said because of a significant number of buyers in the market, there could be a rising market for Southern Basin high security/reliability entitlements for the remainder of 2017–18 and beyond.
“The market sentiment is that these assets are not yet fully valued and so we would not be surprised to see more upward movement,” they said. Marsden Jacob found the first third of the 2017-18 irrigation season in the Southern Connected Murray Darling Basin had seen strong prices both in allocation and entitlement markets. “(Allocation markets have) been driven by dry conditions, below average inflows and strong demand from Murrumbidgee irrigators, especially cotton growers. In the Murrumbidgee, more than 65,000 hectares of cotton plantings are being forecast by Cotton Australia.
“This would be more than a 50 per cent increase compared to last season, driven by both favourable seasonal conditions and new growers that have switched from rice to cotton.”
Strong demand and dry conditions had resulted in allocation market prices that were significantly higher than at the same time in the 2016-17 season. “Dry conditions and demand side drivers can provide some justification for prices being at this level,” the authors found. This season, there had been an estimated 20pc decrease in water availability, but an 80pc price increase, compared with last financial year.