The major storages of the sMDB are currently filled to 87% of their capacity and still filling. Hume Dam itself is near capacity, and managed releases are occurring to satisfy downstream entitlement holders but also to provide capacity to limit potential flooding events over coming months. The BoM has also recently issued a La Nina Alert (meaning a greater than 70% chance of it re-occurring by year’s end). Storages have now exceeded their 2016 peak and there is an opportunity for them to push towards the heights of 2013. This will mean plentiful water to satisfy agricultural and environmental needs for at least the next 2 or 3 seasons.
The current state of the storages builds off above average rainfall since mid-2020. Figure 3 shows the decile rainfall outcome for the last 12 months for the MDB with rains in the upper Murray and Murrumbidgee catchments lying in the Decile 8-9 range – in effect a result that we’d expect every 1 or 2 years a decade. This outcome has been consistent with the weak La Nina of late 2020 and a persistence in climate conditions pushing towards a Negative Indian Ocean Dipole (IOD) and a resurgent La Nina throughout much of 2021.
Historically, entitlement prices have demonstrated a moderately positive correlation with allocation prices.
Kilter Rural’s sMDB Water Entitlement Price Index was impacted by water allocation price movements during 2016-17 and again in 2020 (Figure 4). From December 2019 to October 2020, allocation prices declined by 66.6%, leading to a fall in entitlement prices of 6.6%. Since October 2020, entitlement prices have appreciated by 6.0%, cancelling out most of the fall prior, but allocation prices have not recovered and are down by a further 43% compared to October 2020.
Allocation prices in the Lower Murray have fallen from above $800/ML in January 2020 to a low of $80/ML in Apr 2021. The start of the FY2022 season saw allocation price recovering to $195/ML in early July 2021. However, this was short lived as large carryover volumes and expectations for above-average rainfall weighed on the market causing prices to fall into a range of between $110/ML – $150/ML.
The water availability, being the supply of water allocation, remains the strongest predictor for allocation price (Figure 6). FY 2022’s supply announced to date equates to close to 6,000GL. This has surpassed available supply in FY2021 and is close to matching the available supply in FY2014 and FY2018. However, it is noted that allocation prices remain considerably higher than they were in either of those years. This is a reflection of the changing demand dynamics with significantly more water now being used by high value perennial crops.