Higher interest rates are hitting the water entitlement markets in the Murray-Darling Basin, amidst the prospect of more federal buybacks.
That's according to water policy and management advisors Aither.
Aither Water Markets Advisory lead Ben Williams says the 2022-23 state water register data showed the estimated total value of major entitlements in the southern Basin was $32.3 billion.
The information was contained in Aither's 10th annual Water Markets Report, summarising trading activity and trends last financial year and providing insights into 2023-24.
Mr Williams said very strong opening allocations and the highest volume of water in storage on record meant low prices were set to continue in 2022-23.
"Despite the possibility of an El Nino developing, the good times for irrigators look set to last at least this year", Mr Williams said.
But he said delivery of the Basin Plan remained the wild card, for the market.
"Entitlement prices are likely to rise if the Australian government becomes an active market participant attempting to purchase entitlements to meet Basin Plan targets."
Mr Williams said the Aither Entitlement Index, which incorporated market inputs that were timelier than water register data, experienced a 4pc contraction in 2022-23.
There had been a decade of 21pc compound annual growth, and, despite reaching an all-time high in February 2023, the 2022-23 water year marked the first time the AEI had fallen annually since 2012-13.
"The decrease reflects that water entitlement values are not immune to economic challenges, including interest rate increases, flagging commodity prices, and supply chain issues," Mr Williams said.
"Looking ahead entitlement markets are likely to remain soft until there is an improvement in economic conditions."
Historically high water availability and opening allocations to entitlements saw prices open at their lowest level since 2013-14.
During 2022-23, wet conditions continued across the southern Murray-Darling Basin, increasing water supply and reducing irrigation water demand, Mr Williams said.
"This led to water allocation prices tumbling, with the annual volume weighted average price across the southern basin of $27 a megalitre, 62 per cent lower than last year and the second lowest since records began."
In 2022-12 prices dropped to $19/ML.
Prices then continued to trend down across the year, finishing 80-94pc lower by June 2023.
Late in the season, allocation prices dropped to $0 a megalitre, due to limited private carryover space and market expectations, he said.
That came on the back of a third successive year of wet conditions, which brought excessive rainfall and the worst flooding in the Murray system for 50 years.
Mr Williams said very strong opening allocations and the highest volume of water in storage on record meant low prices were set to continue in 2022-23.
