Water Values Rising Fast
It merits attention that despite a consistent rise in interest rates over the past two years and a marked decrease in commodity prices, especially for cattle, the cost of water has continued to surge. For instance, within various catchments and water plans in Queensland (QLD), such as the Nogoa Mackenzie scheme, the price of water has escalated from approximately $2,000 per megalitre (ML) four years ago, $4,000 per ML two years ago, and it is currently trading at approximatly $6,000 per ML.
This trend is paralleled in the Mareeba Dimbulah scheme in far north QLD, where water values have also risen significantly. Remarkable prices are being fetched in the Great Artesian Basin for different aquifers such as the Marburg, Gubramunda, and Precipice. Comparatively, five to six years ago, values were below $4,000 per ML,now bids are exceeding $20,000 per ML, particularly for aquifers available to feedlot operators. The competition for this water is intense, spurred by increased demand for beef cattle due to heightened rainfall, necessitating expansion of operations, the ability to expand and grow operations is constrained only by the availability of water.
It raises the question of where the ceiling for these prices is.
Water is a critical resource, indispensable for the commencement of any substantial business endeavor. For projects with anticipated growth, it is prudent for operators to procure as much water as they can upfront. As the business expands, acquiring additional water may prove to be a formidable challenge.
Operators often inquire about the methods to secure water, and the response is straightforward: prompt affirmative action is required when presented with a purchasing opportunity. Hesitation can result in missing the chance to acquire water, which may not be available again for generations.
Large feedlot operators comprehend this dynamic and have strategically positioned themselves for long-term success. Unlike land, which can be sold and potentially upgraded, water allocations are finite. The redistribution of water resources indicates that astute operators are safeguarding their future needs. Regarding the costs associated with water, a rudimentary calculation demonstrates the proportion of water expenses attributed to each Standard Cattle Unit (SCU) per day, which, as indicated by the table below, is a nominal fraction of the daily feed cost.
1 ML = 1 million litres
Interest (7%) @ $20,000 =$1,400 per ML per year on revenue account
SCU daily use (60 litres)
Cost p/da is $1,400.0000 / 1,000,000 litres = $ 0.0014
$ 0.0014 x 60 litres per day = $0.08
The daily cost of water per SCU equates to approximately 8 cents per-day
This table provides a rough perspective on the cost per SCU on a daily basis. The table does not take into account the capital costs of sinking and equipping a bore, repayments or variation in interest costs. The interest rate is calculated at 7%. Nor does it calculate the cost when the feed-lot is not at full capacity.