VFF water workshops Victorian Farmers Federation Chris Olszak | July 2019
Introduction Victorian Farmers Federation
T oday’s Purpose The sessions will provide information and knowledge regarding: the status of water markets and outlook for 2019/20 and beyond • Chris Olszak understanding the drivers of water prices • various water purchasing and portfolio management options • insights to assist with short term and long-term business planning • But, we will not tell you how to run your business We are not providing certified financial advice • We encourage you to get information from as many sources as • possible Our aim is to help you plan and make good decisions •
Who is Aither? Independent advisors on water markets, policy and infrastructure Our team works closely with investors, agricultural corporations and governments Offices in Adelaide , Melbourne , Sydney , Canberra and Brisbane Aither provides its water market clients with: • Monthly market updates • Transaction and investment due diligence • Water portfolio strategy • Water valuation services • Water price modelling • Regulatory and policy advice We are pleased to be working with VFF to deliver water market information sessions during extremely challenging times for northern Victorian irrigators www.aither.com.au 4 www.aither.com.au 4
Disclaimer Aither makes no warranties or guarantees, expressed or implied, in relation to any information provided in this presentation and workshop. This presentation does not purport to represent investment, commercial, financial or legal advice, and should not be relied upon as such. T o the full extent permitted by law, Aither excludes all liability for any loss or damage howsoever arising suffered by the recipient or any third party, whether as a result of the recipient or third party's reliance on the accuracy of this information or otherwise arising in connection with this information.
• Where are water markets Current status today? Water availability and markets • What is driving the market? • What does this mean for allocation prices in the year ahead? .01
Current status Storages levels have declined substantially but look to have bottomed out for this year 100% 75% 50% 36.1% 25% 0% Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Southern Murray – Darling Basin major headwater storages, to 30 June 2019 Source: Aither, 2019. www.aither.com.au 7 www.aither.com.au 7
Current status of inflows Inflows have been very low but there is still time for decent winter and spring rains 60 Inflows have been very low but there is still time for decent winter and spring rains 50 40 Inflows (GL/day) 30 20 10 0 Jul 2018 Aug 2018 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 Jul 2019 Long-term average 2018-19 inflows 2019-20 inflows www.aither.com.au 8 www.aither.com.au 8
Current status of the BOM outlook The outlook isn’t great but is uncertain www.aither.com.au 9 www.aither.com.au 9
Current status of allocation prices Allocation prices have responded to reduced inflows and high demand $700 $600 Allocation prices have responded to reduced inflows and high demand $500 $400 $300 $200 $100 $- May 2017 Aug 2017 Nov 2017 Feb 2018 May 2018 Aug 2018 Nov 2018 Feb 2019 May 2019 Combined Murray Murrumbidgee Goulburn Major southern Murray – Darling Basin allocation market prices, July 2017 to June 2019 Source: Aither, 2019. Based on state water registers. www.aither.com.au 10 www.aither.com.au 10
Current status Entitlement prices continue to rise 40 $8,000 Volume weighted average price ($/ML) Entitlement prices continue to rise 35 $7,000 30 $6,000 Volume transferred (GL) 25 $5,000 20 $4,000 15 $3,000 10 $2,000 5 $1,000 0 $0 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Volume transferred SA Murray HS Vic 1A Greater Goulburn HRWS Vic 7 Murray (Barmah to SA) HRWS Vic 6 Murray (Dart to Barmah) HRWS NSW Murrumbidgee HS NSW Murray HS Major southern Murray – Darling Basin entitlement market prices Source: Aither, 2019. Based on state water registers. . www.aither.com.au 11 www.aither.com.au 11
Current status Victorian allocation outlook and NSW and SA allocation summary Victorian 2019-20 mid-February allocation forecasts, announced 15 July 2019 South Australia 2019-20 allocation forecasts, announced 15 July 2019 15 July 1 September 1 November 1 January 1 April Entitlement Wet Average Dry Extreme Dry Victorian 2019 2019 2019 2020 2020 Victorian allocation outlook and NSW and SA allocation summary 100% 100% 55% 29% Murray HRWS (minimum Goulburn assured) 100% 100% 43% 20% HRWS Exceptionally dry Campaspe (99% likelihood 38% 43% 48% 55% 60% 100% 100% 44% 31% HRWS allocation will be at least) Loddon 100% 100% 43% 20% Extreme dry HRWS 38% 47% 66% 75% 79% (95% likelihood Broken HRWS 100% 100% 0% 0% allocation will be at least) Bullarook 100% 100% 100% 100% Very dry HRWS 38% 50% 71% 93% 97% (90% likelihood NSW 2019-20 allocations, announced 15 July 2019 allocation will be at least) Dry Entitlement Current Allocation 38% 60% 84% 100% 100% (75% likelihood NSW Murray GS 0% allocation will be at least) NSW Murray HS 97% Average 38% 69% 100% 100% 100% Murrumbidgee GS 0% (50% likelihood allocation will be at least) Murrumbidgee HS 95% Wet Lachlan GS 0% 38% 86% 100% 100% 100% (25% likelihood Lachlan HS 100% allocation will be at least) www.aither.com.au 12 www.aither.com.au 12
Current status of consumptive water in storage Estimate of consumptive water in storage, 2019-20 (based on 15 July 2019) Estimated consumptive Consumptive allocation Current allocation Entitlement Estimate of consumptive water in storage, 2019-20 (based on 1 July 2019) percentages (as of 15 July) (as of 15 July 2019) (GL) carryover (GL) Vic Murray HRWS 6% 64 190 Goulburn HRWS 8% 62 173 NSW Murray HS 97% 174 - NSW Murray GS 0% 0 256 (estimated) Murrumbidgee HS 95% 338 - Murrumbidgee GS 114 0% 0 SA Murray 102 38% 171 Total 809 835 www.aither.com.au 13 www.aither.com.au 13
Questions?
Drivers of water markets .02
Drivers of water markets Water markets in the southern MDB are changing rapidly with profound implications for irrigators and policy makers Reduced supply Increased demand www.aither.com.au 16 www.aither.com.au 16
Supply side – how has it played out? Example of the impacts of water entitlement purchases and impacts on dairy and rice growers Warning signs evident in Significant adjustment Many irrigators sold entitlement but kept 15/16 but rain granted a (exit) now occurring irrigating due to cheap short-term reprieve allocation 8000 $600 Drought years increased debt and then 7000 commodity prices $500 collapsed sMDB annual allocation price ($/ML) Volume of water allocated (GL) 6000 $400 5000 4000 $300 3000 $200 2000 $100 1000 0 $- 2007 – 08 2009 – 10 2011 – 12 2013-14 2015-16 2017-18 Volume allocated for consumptive use Volume allocated to Cwlth water purchases Allocation price ($/ML) www.aither.com.au 17 www.aither.com.au 17
Demand side Large shifts in irrigated agricultural demand have occurred Tree crops Large increases in the planted Large shifts in irrigated agricultural demand have occurred area of almonds (and citrus) in the lower Murray and the Murrumbidgee Cotton Large scale introduction of cotton into the sMDB with ~70k ha and 800k bales in Murrumbidgee and Murray for 2017-18 season Grapes Strong export conditions have driven recent investments in new table and dried grape developments www.aither.com.au 18 www.aither.com.au 18
Recent Aither report https://waterregister.vic.gov.au/images/Water-Supply-and-Demand-Report_Aither_FINAL.pdf
Demand Water demand from permanent horticulture in the Lower Murray has increased Water demand from permanent horticulture in the Lower Murray has increased Source: Aither 2018 based on ABS 2018 and other industry sources. Comparison of water demand from permanent horticulture, connected Murray, 2015-16 ABS estimate and Aither 2018-19 baseline estimates www.aither.com.au 20 www.aither.com.au 20
Balancing supply and demand Water allocated in extremely dry years may exceed horticultural demand (excluding carryover) Water allocated in extremely dry years may exceed horticultural demand (excluding carryover) Source: Aither 2018 Water availability scenarios and projected permanent horticulture water demand (at full maturity), connected Murray region www.aither.com.au 21 www.aither.com.au 21
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