15 September 2022

Make water plans while the rivers are flooding

15 August 2022

While there are usually plenty of obstacles to navigate in any given year, a shortage of water has not been a problem in recent years. Temporary allocation or spot market prices were low last season, and this looks to be repeating in the current season with another La Nina announced for the East coast.

Now is the time to at LEAST contemplate your future long term water needs. To make some sort of plan on where you want to be in the next 5-years and what your water requirements are likely to be, price estimates etc., so that you have a guide for when you need to make some decisions.

The adage of ‘make hay while the sun shines’ perhaps needs to be amended to ‘make water plans while the rivers are flooding’. While no-one has a crystal ball, you can make an educated guess of perhaps what is to come in the next 3-5 years based of historic data, weather patterns and your own experience and knowledge of your local area.

Short-term market v long term product pricing

Recent temporary market prices have driven irrigators decisions and a potential reluctance to commit to longer term options right now. Comparing the cost of future Lease or Forward Allocation products to the current market price may seem unpalatable right now but, if you can lock in some pricing for a portion of your volume requirements now, it may save you some unnecessary financial hardship down the track.

Broadly there has been a decrease in Lease pricing, driven by lack of market uptake and seasonal conditions but this is only temporary. Pricing will inevitably increase with demand, drier conditions and inflated entitlement values. It is up to you to decide if or when you enter the market.

Spread your risk

You have options. It is not a one or the other decision, spread your risk by using different products across your requirements to give you flexibility in any given season. A similar example is in debt management, a lot of people would be looking at or have already locked some of their debt into fixed interest rates, to mitigate the very apparent risk of future interest rate rises before the opportunity is gone. Utilise the entitlements you hold to your advantage and select other products or strategies to cover your needs. Make sure you are up to date with your irrigation system rules and trading rules e.g., Carryover, trade restrictions and how spills affect allocation held in spillable water accounts.

A rough base plan to spread your risk for your water needs:

1/3 Owned Water Share

1/3 Secured – Lease, Forward, carried over etc.

1/3 Temp Market

This is not a one-size fits all approach but an example of how you can spread risk through using various products to provide some control and adaptability.

Alternatively, you could utilise some of your entitlements as an income stream by offering short or long-term products to other users such as Carryover space, Forward Allocation or Lease if you have surplus.

Future implications

Government Buy-Backs are on the cards and without getting into how much they may or may not be paying, any reduction of water entitlements in the consumptive pool will potentially have an impact on the market through supply and demand. This also needs to be considered in your plan to help decide predicted water costs.

Forward thinking

Whether you set the plan in motion now or later, its not a waste of time to consider your future strategy. With farming, you never really know what is coming next but a realistic water plan may help you assess your options, whilst they are actually still options, and map your upcoming requirements with some sense of self-assurance.

This article was written by Citrus Australia’s Corporate Partners, Water Partners.