Water Market Now in Seasonal Low Period for Prices

Water Market May Be Bottoming Out:
• Season lows typically hit in February
• Reservoir levels now declining. Note Major reservoir levels are now about 750,000 ML above their levels a year ago as outlined in the table above. This additional storage compares with 2,500,000 to 6,500,000 annual water use in the LMDB over the last ten years.
• Charts indicate $150-300/ML range over the next few months as per the chart above.
• Prevailing prices this last few months between $160-200/ML with typical discounts of another $30 in the Murrumbidgee provide most grower groups with the opportunity to carryover water and irrigate profitably next season.

MURRUMBIDGEE BALLOT AND SEASONAL CARRYOVER

THE MURRUMBIDGEE BALLOT

64,347 ML of the allowed 70,000 were entered, so no ballot and all sold their water. Around 41,000ML, was sold to NSW. Approximately 15,000ML will go to South Australia and around 8,000ML to Victoria.

This is about 17% of the total traded out of the Murrumbidgee last year (net 388,000 ML). In 2007/08 139,000 ML net was traded out, 2006/07 saw 96,000 ML leave the Valley and in 2005/06 only 5,000 ML went out.

How much could potentially leave the Valley this year? Perhaps not much more, with government policy, historical trades out, water price and potential allocations for this season! What do others think? Register your thoughts on the BLOG.

CARRY OVER FROM 2008/2009

(Figures reported in Weekly Times and NSW State Water Press release):

230,000 ML (Murrumbidgee) + 85,000 ML (Goulburn) + 186,000 ML (Vic Murray), providing a total of 501000 ML. With the only figure missing being the NSW Murray, we have made an assumption based on 1.668m ML of entitlement and 9% allocation for the year - at 3% carry over, we have another 50,000ML approximately.

From these figures, we see that there was in the vicinity of 550,000 ML in storage at the commencement of the 2009/10 water year.

This actually represents 86% of the water allocated this year. Hence we have potential demand of almost 1.2 million ML or 33% of what was in storage last week. Possibly this will restrict increased allocations as we move further into the season. Of course, we are at a critical point in the inflow patterns and this will finally determine, to a significant extent, final allocations early in the New Year.

At this stage of the season, we suspect there is significantly more water in the system than what has been utilised - this would contribute the the 'bearish' nature of the water market in the past 10 days.

WHERE TO NOW FOR WATER PRICES?

Last week we pointed out the key support at $390 which if broken could see a test of support at $345 and $280 and rising. These two charts, now updated, showing how this scenario has pointed out. Support is now at $282 and $287 and still rising.

Weekly volume adjusted price held the support at $345. However, the market is currently trading below that.

As seasonal strength dissipates there is long term pressure on the market as show in the weekly chart.

Please refer to last weeks comments on long term pressure on the market. Also see last weeks chart below:

We now present the chart for the daily prices for the week ending 27th September - demonstrating the continued support just below $290:

As we can see from the red and yellow lines, the support is as suggested at $287 and $282, with these lines rising. We have of course seen the price move down in the past 1o days with good rainfall in the catchments.

In summary:

· Many charts point to very strong support at around $280.

· We are still in the seasonal strong period.

· So far no evidence that there is more water accumulated this year in MDB than last year.

· Nonetheless authorities have increased comparative allocations.

· Some reasonable rain has added to bearish sentiment.

· So far the only new factor that is proven is the reduced price of feed for dairy.

· The market would appear more likely to go up $100-200/ML from here than down by even half that amount. Good point to buy; not a great point to sell.

In closing, the weekly chart:


Just click on the chart to obtain a larger image!

COMPARISON OF ALLOCATIONS AND WATER IN STORAGE

Analysis of water stored versus water allocated for the Lower Murray Darling Basin in the past 2 years provides interesting comparison. Across the Lower Basin, there is 2.5% less water in storage this year, compared with last year - 3,875.1 GL in 2008/09 and 3,777.9 GL currently. This is only approximately 100,000 ML less. However we have current allocations of 636,710 ML by comparison to 514,840 ML at this stage last year, the net difference is 220,000 ML - not insignificant in the scheme of things.

With a new allocation announcement due on October 1st, perhaps there is little room to move. Without an increase in allocation, the allocation market will potentially see a firming of prices or at least strong support at the price level we now see.

The Charting Analysis will be published over the weekend.

GRAIN AND HAY PRICES SOFT - WATER PRICE SOFTENS TOO

Good spring rains are fueling excellent yields in grain crops in Southern areas of the Basin and Western Australia. However, some crops are being cut for hay due to lack of rain in other parts.

Whilst this places downward pressure on the price of these commodities at harvest, there is some relief for the embattled dairy farm. With low allocations (zero so far in the MIL and NSW Murray) and milk prices the dairy farmer can see some relief in lower input costs. Reports to hand suggest grain prices continue to soften and hay is appearing on the market south of $100!

Water prices have come off the $400 mark with continued spring rains and the softer grain and hay prices. See the latest charting report in the blog.

ALLOCATION NEWS

With a mid month allocation announcement during the week, we should just recap on where we are at this stage:

Murrumbidgee High Security - 60%

NSW Murray High Security - 50%

Vic Murray High Reliability - 13%

Goulburn High Reliability - 7%

We are now at that critical stage of the water year - inflows are building, with the Lower Basin at 26%. Inflows have slowed this week, however good rains yesterday will have a good impact next week. Forecasts are excellent for heavy rains early next week.

WHAT'S HAPPENING ON THE CHARTS

This week we look at several charts and provide some commentary on the likely range and direction of the market:
This first chart suggests support at $390, then $345. Then $280 (red and rising) which is looking increasingly likely to be tested, if we break clearly down through $390 and then $345 (as lines are splayed and thickened.) For a full view please click on the screen.




Then the second chart at right shows much the
same:

If we break down through green around $390












The third chart (to the left) shows strong support at $350/370 and rising rapidly. It also implies the market is not quite ready for a downtrend.






The fourth (weekly) chart shows very strong support at the $345-$375 levels; main resistance at yellow declining rapidly from $625.

Conclusion: If the market holds the $350/370/390 level (volume weighted daily average) after recent allocations announcements, then another move towards the higher end of the range $350-$450 is likely; possibly then testing $550-$600 for seasonal highs if inflows do not significantly exceed those of last year.

Furthermore the final chart above shows downward pressure of red at $420 and rapidly declining yellow towards mauve, reflecting liquidation of long term bullish positions as we reach the end of the 2009/10 water year.
Trendline support at$285 rising to $320, likely to be tested during season downtrend.