4, November 2015

River Murray Water Price History

This article differs from other broker’s price reports because the data here is straight from the registers of the three state water authorities (South Australia, New South Wales and Victoria.) Surprisingly, this is the only calculation of prices involving all allocation trades recorded in the three registers.

Allocation water is the actual amount of water that can be extracted in that water year (the same as the financial year for the River Murray.) This can be traded to another water licence for use in that water year, hence some call it temporary water. Water licence holders are given a percentage of their licence’s share component as allocation water, which starts low in July and increases as the year progresses. There were exceptions during the previous drought where allocations were reduced after they had been given out, but it’s unlikely they will do that again.

The following chart is the Volume Weighted Average Price (VWAP) paid for allocation water in the River Murray from 1 July 2004 to 30 October 2015.

River Murray VWAP

The dry years of 2006 to 2008 attracted high prices with a peak in October 2007 of $940 per ML ($830 per ML in 2007 dollars.) In that month, 27 988 ML was bought in NSW and Victoria, so this peak was not from a handful of trades. Similarly, in 2015 which is an El Niño year, we’re seeing increasing prices. The price in October was $239 per ML, however it was higher towards the end. The last week of October price was $278 per ML.

These figures are from when the trade was approved, not when it was contracted, so they lag by about one week in a rising or falling market. Given the trades in November so far, the market as at 4 November 2015 is $290 per ML.

Every time an application is submitted to the authorities, the price is included. Many trades are for $0, for example, between farms owned by the one business, and along with outliers, they are not included in these figures. Similarly, trades within private irrigation corporations are not included because that information is not available.

For allocation trades, most brokers have the buyer pay the application fee, so I’ve added in the application fee with each trade. Historical fees were found using the Wayback Machine. There would also be broker fees for the buyer, but that information is not available.

The registers publish all trades on the web. Here are the registers for South Australia, Victoria and New South Wales.

South Australia’s data goes back to 1 July 2009 and Victoria’s to 1 July 2007, so price data before those dates is for the remaining states and the figures include all trade above and below Barmah choke.

Apart from price, the other interesting figure is volume. Since we only have full data from 2009, here is the volume chart from 1 July 2009 to 30 October 2015.

What is VWAP?

Let’s say there are two trades, one of 5 ML at $10 per ML and the other of 500 ML at $1 000 per ML. Taking the average of $10 and $1 000 isn’t a valid way to calculate the market price because one trade is for a larger volume. VWAP takes this into account. In this case, it’s the sum of price times volume for each month divided by the volume for each month.

What is the real price?

2004 was long enough ago that the prices need to be corrected for inflation (over this period inflation was 25 %.) I’ve used the CPI index to make this correction to each month’s price.

River Murray Volume

Another trend that can be seen from the volume is that most trade occurs in the second half of the water year. Irrigators have better knowledge of their requirements later in the year, so it makes sense for most trade to occur then.

There is a hard limit on the maximum price of allocation water which depends on how good your lawyer is; the approximately $2 000 per ML fines for overuse.

We’re heading for interesting times in the water market. The situation is not as dire as 2006 yet and the market is more mature.

06/11/15 new article on Goulburn and Murrumbidgee prices.

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