High water cost dries up basin profit margins

By Alana Christensen

A significant increase in temporary water prices in the Murray-Darling Basin is placing permanent crops like almonds, wine grapes and citrus under considerable pressure, with water costing up to 40 per cent of the per-tonne average value of commodities in some instances.

The NAB rural commodities wrap, released in November, highlights the impact persistent drought across eastern Australia is having on both water storages throughout the Murray-Darling Basin and how subsequent skyrocketing temporary water prices are impacting producers.

NAB Agribusiness economist Phin Ziebell said permanent plantings were in a particularly tricky position due to their need for constant water.

“The temporary water price in VIC Murray (Barmah Choke to South Australian border) has increased 138 per cent in the past year, to $950/Ml,” Mr Ziebell said.

“Upstream of the Barmah Choke, temporary water prices have increased 55 per cent over the same period.

“Our modelling shows that for a temporary-water reliant wine grape producer in the Sunraysia region, the $550/Ml uplift in price equates to roughly $180/tonne of grapes, or nearly 40 per cent of the per-tonne average value of warm climate wine grapes.”

With most general security entitlements across NSW at zero per cent, the report details that elevated temporary water prices are beyond the reach of annual crops like cotton, with production volumes tipped to be low again this season.

“Based on current prices and average application rates and yields, neither cotton nor rice are overly profitable at a temporary water price of $800/Ml,” Mr Ziebell said.

Despite the challenges presented by low water availability, the NAB Rural Commodities Index recorded an overall gain of 2.5 per cent in October.

NAB Agribusiness customer executive Neil Findlay said resilience in livestock markets was a key driver of the increase.

The Eastern Young Cattle Indicator reached its highest level in several months, at 517¢/kg.

“While there is still considerable weakness in the store cattle market, processor demand for finished cattle runs hot amid strong export market performance,” Mr Findlay said.

NAB’s winter wheat forecast remains on hold, at 15.5 million tonnes, with eastern states predicted to face another season of international and West Australian grain imports.

High input costs in northern Victoria persist, but consistently improving Global Dairy Trade auction results are providing a boost to processors offering strong farmgate prices to maintain milk flow.

The NAB report also details a somewhat brighter Bureau of Meteorology three-month outlook.

“It looks as though early autumn conditions may improve, and while rainfall outlooks this far in advance are speculative, any indication of above average rainfall is welcome,” Mr Findlay said.