A significant change in rainfall and temperature outlook leading into FY24

The rainfall outlook leading into the next water year substantially differs from what has generally been experienced over the past three wet years, heavily influenced by rare triple consecutive years of La Niña.

There is increasing climatic model consensus for much drier conditions leading into the start of the 2023-24 financial year, with February already demonstrating drier conditions and below-average rainfall across much of the Murray-Darling Basin.

FY24 is also expected to be a year of very high water demand.

Market drivers are aligning for the upcoming year to be one of changing supply dynamics coupled with high demand.

Over the past three years, the very wet conditions have hampered crop preparations. However, drier conditions forecast over autumn through to spring should create ideal conditions for crop producers looking to maximise their yields.

A predicted return to a normal ‘hot’ summer will likely see water usage levels much higher than for the previous three La Niña years. The ongoing maturation of large areas of almond orchards will also underpin increased summer water demand. As these mature, their water consumption triples. Water demand for these high-value crops peaks over the hotter summer months and can be considered inelastic, given the need for orchard owners to preserve the capital value of their assets.

Existing Almond Plantings & Subsequent Water Demand

If water demand eventuates as projected, storage dams can draw down relatively quickly and market sentiment can change rapidly if a drier outlook persists.

The Federal Government recommences buybacks to meet environmental water recovery targets

The Ministerial Council (MinCo), comprising the Federal Government and Basin State Ministers, met on 24th February to discuss options for progressing the implementation of the Murray-Daring Basin Plan (Basin Plan).

The Basin Plan was passed into legislation in 2012, with some amendments since to redress the environmental impacts of overconsumption of the Murray-Darling Basin’s water resources. The Basin Plan requires the equivalent of a further 1,055 GL/year to be recovered for the environment from a range of state-managed infrastructure upgrade projects. All of the water recovery targets are to be achieved by June 2024.

There are significant shortfalls in the water recovery outcomes achieved to date. As a result, the Federal Government has announced it will recommence direct entitlement buybacks to reach this target by June 2024.

Kilter’s industry-leading water asset management strategy leaves it well-placed to navigate these market drivers over the coming months.

Kilter Rural manages two open water funds, Kilter Water Fund and the Murray-Darling Basin Balanced Water Fund, delivering uncorrelated returns to investors over 13% per annum (annualised).

Our Water Investment Team produce a quarterly Water Market Update. To request a copy, please email invest@kilterrural.com

Everything contained in this document is for informational purposes only.  It has been prepared from information believed to be accurate. However, no representation or warranty is made by Kilter Pty Ltd (“Kilter”) as to the accuracy or adequacy of any information contained in the article. Past performance is not indicative of future performance. This information is not an offer, recommendation or personal advice in relation to an investment in any Kilter fund or any product or service offered by Kilter.  The analysis in this article is accurate as of the date of publishing. There are usually differences between forecast and actual results because events and actual circumstances frequently do not occur as forecast and these differences may be material. The actual outcomes are dependent on future events, which may be radically different from those predicted for reasons outside Kilter’s control.