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New report predicts price drop for southern MDB

Leading independent water markets advisor, Aither, has released a report which summarises water trading trends over the past year for the southern Murray-Darling Basin and predicts lower allocation prices in 2016-17.

The report highlights that, while water availability continues to be the primary driver of water allocation prices, structural shifts in agricultural production are likely to continue to impact entitlement prices in the next few years.

Aither’s Water Markets Report is published annually with a focus on the southern Murray-Darling Basin. The report provides governments, investors and rural water users with information and outlooks to improve water market and industry decision making.

Aither Director, Chris Olszak, said “Water markets across the southern Murray-Darling Basin in 2015-16 were characterised by increased price volatility. Despite this volatility, dry conditions have meant that the trend over recent years has been up, with allocation at the highest levels since the Millennium Drought and permanent entitlement prices reaching historically high levels”.

“The total value of commercial trade in 2015-16 in the southern Murray-Darling Basin was approximately $400 million for entitlements and $260 million for allocations,” Chris said.

“The combined market value for major consumptive water entitlements in the southern Murray-Darling Basin has doubled in the past three years and is now valued at over $11.5 billion”.

“This excludes an additional $2 billion worth of entitlements purchased by the Australian Government for the environment”.

“Allocation price expectations for 2016-17 have softened significantly from six months ago. This has been driven by higher than expected rainfall, runoff into dams and the milk price collapse.” Chris said.

Continued interest from large horticulturalists... has the potential to underpin the market and limit further price reductions
Chris Olszak, Aither

“Based on Aither’s water price models and government climatic outlooks, we expect annual average southern Murray-Darling Basin allocation prices in 2016-17 to be around $170 per ML under average conditions, with some regional exceptions. If higher than median rainfall prevails, allocation prices could be lower than $135 per ML. This compares to a peak of approximately $300 per ML in 2015-16.” Chris said.

“Lower allocation prices in 2016-17 will be a relief for many irrigators.” Chris said.

“Declining water entitlement prices in Victoria, potentially driven by challenging conditions in the dairy industry, may be representative of an overall market softening. However, continued interest from large horticulturalists, particularly new nut developments, has the potential to underpin the market and limit further price reductions.” Chris said.

“In addition, there are also a number of large water investment plays in the market right now. Aither expects that these investments might also act to underpin entitlement prices across the southern Murray-Darling Basin.” Chris said.

Aither’s full report is available online at: http://www.aither.com.au/water-markets-reports/.

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