The head of northern Victorian water trading co-operative, Waterpool, says seasonal conditions, rather than investors buying irrigation entitlements, are the biggest price driver.
Waterpool’s prices were currently around a weighted average price of $301/Megalitre.
“Seasonal conditions have a 99.9 per cent effect as a driver of our price,” Waterpool chief executive Peter Lawson told an Agriculture Victoria seasonal outlook workshop, Wyuna.
Agriculture Victoria confirmed water prices had risen dramatically since autumn, from $100 to $360/ML, affecting irrigated crop growers and dairy farmers.
Mr Lawson said there were other factors behind the price spike, such as allocation volumes, but they were also the result of seasonal conditions.
“There are cut off points where on farm feed production turns to imported feeds
“But, again, those alternatives are driven by seasonal conditions.”
In the same way, decisions on what to produce were also affected by the season.
“It depends on where the rainfall finds itself and what catchments are alive and which ones aren’t.
“How much can an industry afford to pay for a megalitre of water, before it becomes uneconomic?”
Mr Lawson said nut growers, around Sunraysia, had higher margins than crop growers or dairy farmers.
‘Obviously, they can drive prices up a bit when water is scarce, but commodity prices are also driven by seasonal conditions.”
He said there was a perception more and more water was going into the hands of non-irrigators.
“That’s the case to some degree, but it’s not as dramatic as we might think,” Mr Lawson said.
He said it was true investors could have an effect on prices, but they only held a very small percentage of available water.
“The investment space is no more than five per cent of total volume.”
“It’s a gut-feel guess that there are probably five major players in that space, so their ability to influence the market to any great extent is not that high.”
Market trading rules didn’t allow them to take water away, store it up and “make a hit down the track,” he said.
“If they are going to make money for investors, that water has to hit the ground as irrigation water somewhere.”
He said the market was maturing, as irrigators realised they could buy water more cheaply at the beginning, or end, of the season.