Leading water market analyst Marsden Jacob Associates says Southern Connected Murray-Darling Basin allocation prices are approaching those seen during the Millenium Drought.
In its latest Murray-Darling Basin water market update, Marsden Jacob said the start of this year's irrigation season was marked by all-time high prices for high security/reliability entitlements.
At the start of the 2019-20 water season, allocations were trading at, or around, $600/megalitre.
"These early prices were in line with the forward market trades contracted during the previous year," the report found.
"From August 2019 onwards, priced differences between the catchments started to occur as a result of trade limits coming into play."
By November, some trades at more than $1000/ML were being seen, in some zones.
More recently, prices had softened on the back of rain events, allocation increases in Victoria and the federal government's Water for Fodder program, which had brought more supply onto the market.
"Although prices have been strong over the first half of 2019-20, the volume of trades for July to December was down significantly (around 20 per cent), compared with the same period in 2018-19," the report found.
Marsden Jacob Associates principal Simo Tervonen said he expected irrigators to face their next big decision in the middle of next month, when water authorities released their first outlooks for the coming water year.
"Availability will not increase, unless there is some significant rain and inflows into storages," Mr Tervonen said.
"I anticipate outlooks for next year will be quite bleak, and that will result in markets moving up."
Below-average inflows into storages had pushed down the availability of water.
The "availability deficit" for non-environmental water users, compared with the same period in 2018-19, was approximately 1000 gigalitres.
"The availablity deficit is significant, compared with last year, let alone the year before," Mr Tervonen said.
"This is due to both lower announced allocations and amounts carried over."
Market expectations were for temporary water prices for the rest of the water year to be higher than last season.
"Many stakeholders are commenting that unless there are substantial inflows to the major storages, there will be further upward pressure on prices and things could get really ugly if there isn't enough water for permanent plantings," the report found.
According to stakeholders, summer demand for permanent horticultural growers, below the Choke, would be strong, with many irrigators short of water.
"With this in mind, we were not particularly surprised to see allocation trading in the $900-$1000/ML range, earlier in the year," the report said.
"Prices could even exceed these levels in months to come, approaching levels only previously witnessed during the Millenium drought in 2007-08."
Opening of the Goulburn Inter Valley Trade would bring more supply to the market, potentially having a softening impact on prices.
The report's authors said the Goulburn IVT was likely to be affected by Water for Fodder allocations.
"Combined with IVT water deliveries into the Murray system, (that) will have an offsetting impact on the trade limit, potentially keeping the trade into the Murray open for the remainder of the year, once open.
"This would mean parity prices with the Murray system.
"Perhaps, in anticipation of this, the Goulburn prices have recently risen to $700/megalitre."
The effective closure of Barmah Choke trade meant allocation prices, above the Choke, were trading for about $200-300/ml less than below.
"Water for Fodder transfers are likely to open up the Choke, momentarily, but we anticipate it will close very quickly, and remain shut for the rest of the season."
Marsden Jacob also suggested the trend to record prices for most entitlement classes, in the SCMDB, were likely to continue.
"Based on the discussions Marsden Jacob has had with market stakeholders, there is no expected softening, on the cards, for the high security/reliability entitlement prices, as multiple buyer groups continue to look to secure more entitlements," the report found.
"In addition, the current drought has strengthened the relative value of owning high-security entitlements, capable of yielding allocation under drought conditions, compared to lower security entitlements, or sourcing water using allocation products."
At the end of last year, the aggregated average price for high security/reliability entitlements was more than four times higher, compared to late 2013, when the entitlement markets were broadly at historical floor prices.
"Despite a softening of late, general security entitlements are almost two and a half times more expensive in a similar comparison and Victorian low reliability entitlements have more than trebled their value on aggregate."