Southern Murray-Darling Basin 'double whammy'

According to the latest Aither Water Markets Report the value of entitlements hit $30 billion, up 13 per cent on the previous financial year.

Aither analysts provide independent water markets, policy and infrastructure advice to governments, producers and investors..

The report shows detailed findings on market conditions, allocation and entitlement markets, policy and management, and how they impacted the basin through 2021-22.

Aither Water Markets Advisory Lead Dr Erin Smith said the market value of entitlements held by environmental water holders increased to $7.8b, up 12 pc.

"The record high is due to heightened long-term interest in water entitlements and a lack of willing sellers," Dr Smith said.

"Wet conditions across the southern Murray-Darling Basin in 2021-22 increased water supply and reduced irrigation water demand.

"This double whammy saw water allocation prices tumble for the second year in a row."

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The report found the total volume of water allocated to major southern MDB entitlements was the highest observed since Aither's data series commenced in 2007-08.

The total amount was 7,450 gigalitres, 22 per cent more than the previous financial year and 545GL more than the volume allocated in 2016-17, the last wet year.

The report found average allocation prices across the southern basin opened at just above $120 a megalitre and held for the first half of the water year.

By the end of summer, prices dropped, closing below $20/ML by June.

Water entitlements were being held "incredibly tightly," Dr Smith said.

"Ultimately what seems to be happening is people are taking a long-term view of this particular asset class," Dr Smith said.

She said the value of water entitlements was tied to the value of agricultural commodities that could be produced.

"Over the last five or six years most of the irrigators of agricultural crops have enjoyed pretty strong prices, at some point in time," she said.

"Rice and cotton, in particular, have been the particular beneficiaries of that - particularly over the last 12 months; that's playing a key part, as well."

Irrigators were holding onto entitlements to grow crops and did not have to buy water, due to wet conditions.

Dr Smith said while water prices did get very low, even reaching close to $0 in the Upper Murray zone in NSW, it was only for a short time during the year.

"There was a lot of allocation trade across the southern connected system and when you average it out it was $71 megalitre for the year, which is actually still a bit higher than the equivalent annual volume weighted price price in 2016-17, one of the last wet years people remember," she said.

"That was $58/ML."

The report found the annual average southern basin allocation price ranged from was $54/ML in Victoria 1A Greater Goulburn and $102/ML in SA Murray.

Full dams had limited the ability of irrigators to carry water over.

"There is really only one thing for people to do and that is potentially carry it over, but when you have lots of water that space is often fully utilised and there is an oversupply towards to the back end of the season, which is why saw those prices drop to those low levels," Dr Smith said.

Dr Smith said because of the supply held in dams, and a wetter than average outlook from the Bureau of Meteorology, allocation prices could remain low for the next year.

At the start of 2022-23, strong new season allocations to most entitlements, and a record volume of consumptive carryover water, meant irrigators had a lot of certainty for the year ahead.

The report said downstream trade opportunities were likely to be few and far between, meaning prices in the lower Murray would again be higher than the upstream zones.

"Water demand from annual croppers in the Murrumbidgee will be key," the report said.

"If it turns dry over summer, allocation prices could be pushed higher than in the lower Murray and we could possibly see back trade into the Murrumbidgee."