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A great water outlook for Murray-Darling Basin irrigators

After several years of drought and record-high water prices, the outlook for irrigators in the Murray-Darling basin over the next 12 months is positive.

In the three years to June 2020, irrigation businesses across the Murray-Darling Basin faced incredibly challenging conditions.

Water supply was severely constrained, water allocation prices reached new highs not seen since the millennium drought, and there was intense public scrutiny on water markets.

Now, the tide has turned. Most irrigation businesses in the Murray-Darling Basin are well placed for this irrigation season. Full allocations have come to all major entitlements and there is cheap water available on the allocation market.

Here are four factors Aither is keeping an eye on as we head into peak irrigation season and beyond.

1. What will the 2021-22 drawdown on storages be?

Cotton, rice and other annual crop growers are gearing up for a big season. This means that the drawdown on storages in the southern Murray-Darling Basin – when outflows exceed inflows – is likely to be large compared with the last couple of years.

The last time we had a large drawdown was 2018-19. But conditions turned dry quickly that year. In 2021-22, the rainfall outlook from the Bureau of Meteorology indicates wetter than average conditions over from December to February, and water from Menindee Lakes will contribute to deliveries to the lower Murray.

Just how large this season’s drawdown on the upstream storages is will determine how strong the starting position for 2022-23 will be, and how long the good times roll on.

2. Where are allocation prices heading?

At this time of the season, there are still several scenarios that could play out, but they all generally look good for water users.

So far, there appears to have been something of a ‘floor price’ in allocation markets. Market participants have been securing water at prices that are profitable for their enterprises. All price scenarios from here are dependent on when it rains and how much it rains.

What happens after peak irrigation season will be just as interesting. The key driver of prices late in the season will be the extent to which market participants find it difficult to secure carryover space.

3. Is there still upside in low reliability and general security entitlement prices?

Low reliability and general security entitlement prices all lifted in 2020-21. These price increases reflect high demand for carryover space.

If you tuned into the 2020-21 Aither Water Markets Report presentation, you’ll recall that we drew attention to the large volume of water carried over into the current water year. How market participants continue to value carryover will likely be a key driver of entitlement markets over the coming months.

If carryover lease prices in 2021-22 are like the prices seen last year, there appears to still be upside for low reliability entitlement prices.

4. Keeping an eye on what’s happening in state-based water policy and management.

At the end of October, the Australian Government announced how they intend to progress the recommendations from the Australian Competition and Consumer Commission’s inquiry in water markets. There are also several Basin state government initiatives that are worth keeping an eye on. These include:These include:

All in all, 2021-22 should be remembered as the year when switched-on irrigation agri-businesses were able to deploy multiple strategies to make the good times last as long as possible.

Chris Olszak is the founding director, and Erin Smith is associate director, water markets lead, at Aither.

This article was edited on 5 November to reflect updates in the water market since publication on 22 October.