1. SA Fresh Fruit Growers–May 2016
Stephen Flaherty

2. Ruralco Water Ruralco Water is part of Ruralco Holdings (RHL on ASX)
Ruralco Water, through its predecessors SWEX and WaterNET has had a presence in the Southern Murray Darling Basin market going back to the ‘90s
Brokers and Agents based in major southern irrigation centres

3. Agenda Some basics Overview temporary water market
Overview of permanent water market
The future of securing water

4. Southern Connected Basin Water Market
David

5. Current storage levels and seasonal allocations
David
as at 17 May 2016 (64GL compared to 26GL Last year
38 Gigs better of.

6. Agenda Some basics Overview temporary water market
Overview of permanent water market
The future of securing water

7. Temporary water price drivers
What factors drive prices up or down?
Rainfall, inflows and storage levels
Irrigated crop profitability – particularly annual croppers
Trade restrictions

8. Temporary water availability & prices 07 -15 Across the major Southern valleys

9. Temporary water price 07 - 15 VIC Murray (zone 7) monthly median temp prices

10. 80% +, full high security allocation may be slightly delayed
Outlook for 2016/17
1st September allocation outlooks for 2016/17:
INFLOWS
EXTREME DRY
DRY
AVERAGE
WET
NSW Murray HS
80% +, full high security allocation may be slightly delayed
NSW Murray GS 0% 6%
21%
21% +
M’bidgee HS
95%
100%
M’bidgee GS
26%
40%
60%
VIC Murray HR
17%
25%
55%
VIC Goulburn HR 3%
19%
38%
67%
SA Murray HS
36-65%
David

11. Agenda Some basics Overview temporary water market
Overview of permanent water market
The future of securing water

12. Ownership in the Southern Connected Basin
David
Approximately 7,700 GL of entitlement in the Southern Basin (excluding supplementary)
*Ruralco Water Estimate

13. Permanent water price drivers
What factors drive prices up or down?
Temporary allocation price (rainfall, inflows)
Irrigated crop profitability
Government policy

14. Permanent water price trends
strong commodity prices, Gov’t buying & dry weather
Poorer commodity prices, less Gov’t buying & wet weather
Improving commodity prices, increasing 3rd party investors & dry weather
Peak of MIS

15. Permanent water relativity
What factors determine the relativity of price between the different entitlement types? • Reliability of allocation • Holding costs • Tradability of allocation • Permanent trading rules • Carry over rules

16. Key types of permanent water
Long term Average Allocation Yield
Allocation yield during Millennium drought
Current market prices ($/ML)
06-07
07-08
08-09
09-10
SA Murray HS
90%
60%
32%
18%
62%
$3,000
NSW Murray HS
95%
45%
70%
97%
$3,500
NSW Murray GS
81% 0% 9%
27%
$1,250
NSW ‘Bidgee HS
NSW ‘Bidgee GS
64%
15%
13%
21%
$1,475
VIC Murray HR
43%
35%
100%
VIC Goulburn HR
29%
57%
33%
71%
$2,800

17. Emerging Trends & Drivers
•Ongoing investments in irrigated agriculture, especially higher value plantings
Almonds, hazelnuts, olives, citrus showing strong growth
Cotton has moved south
Dairy industry consolidation
Strong buyer demand for entitlements
Doug

18. Carryover opportunities for 1 July 2017*
SA Murray HS (AVAILABLE FOR )
Holders of irrigation entitlements will also be allowed to carry over their unused allocation volumes from into the water year - up to a maximum of 20 per cent of their entitlement volume. For carryover, water allocations traded from interstate will now also be factored into the determination of underuse against a licensee’s entitlement volume. The maximum carryover that has been granted is 20% of the entitlement held, but may be less depending on the volume of water deferred - this is currently 60GL, about half the volume required to give 20% carryover for eligible licence classes (Class 3 is eligible).
EG : season you have 100 ML Parcel of Permanent entitlement with 100ML of allocation
You have used 80ML during the season and therefor have 20ML of allocation left over
The 20ML left over is 20% of your entitlement allowed for Carry Over
= 20ML Carry over into Water season. Less 5% to evaporation = 20ML less 1ML for evaporation = 19ML . The new water season opens July 1 and allocations are announced at 65%
You will have 84ML to use in the new water season

19. Carryover opportunities for 1 July 2017*
NSW Murray: Carryover is permissible to a maximum volume of 50% GS entitlement, a limit of 110% allocation can be issued in one year, thus in event of carrying in 50%, allocation improvements above 60% are potentially unfavorable. Current optimistic (wet) outlook has given a ¼ chance of 42% GS allocation by 1 Nov No carryover is allowed against HS entitlement. Murrumbidgee GS: Carryover is permissible to a maximum volume of 30% GS entitlement, a limit of 100% allocation can be issued in one year, thus in event of carrying in 30%, allocation improvements above 70% are potentially unfavorable. Current optimistic (wet) outlook has given a ¼ chance of 100% GS allocation by 1 Nov VIC Murray & Goulburn HR + LR: Carryover is permissible up to share volumes, 95% of this is available 1 July, a limit of 100% allocation can be issued in one year, thus in event of carrying against HR shares, allocation announcements are potentially unfavorable. While carrying against LR shares is a safer option as allocation announcements are extremely unlikely. *Please consult with Steven Flaherty and other Ruralco water brokers for further detail
Doug

20. Agenda Some basics Overview temporary water market
Overview of permanent water market
The future of securing water

21. The future of securing water
Higher allocation prices (less supply more demand);
More institutional investors owning water;
More farmers considering water as an input and using a mix of water products
Innovative farmers trade water to complement their core farming activities

22. Ownership of permanent entitlements
• Supply of temporary allocation is produced from upstream storage inflows in perpetuity
Permanent entitlements are finite in nature
Asset investment
Current income yields of 5% to 9% via sale of allocation
Significant asset capital gains since
Effectively owning a small portion of the dam in perpetuity

23. Trading temporary allocation from spot market
• Supply of temporary allocation based on the purchase of someone else’s rights to upstream storage inflows– effectively utilizing their rights for a season with sale price determined by the market

24. Leasing of permanent entitlements
Just like land, water can be leased
Leases commonly based on cost of capital and market value of permanent entitlement
Common for 3 year terms and income yield of 6% + cpi indexing
Effectively leasing the ownership in a small portion of the dam

25. Forward allocation agreements
•A known volume of temporary allocation can be secured at a known price today for later usage
Duration of agreement can be negotiated
Deals for season sold at $80/ML - $100/ML
Deals for season sold at $160/ML - $200/ML
Deals for recently sold at $275/ML
David

26. Utilising carryover rules
• Through either ownership or leasing of certain permanent entitlements, current rules allow for the carryover of unused temporary allocation from one season to the next
Secures a portion of next season’s allocation needs today, value adding to the benefits of permanent entitlement use

27. Disclaimer
The information contained in this presentation is general background information about Ruralco Water and its activities, and is in summary form and does not purport to be complete. It is not financial product advice and does not take into account the investment objectives, financial situation or particular needs of individual investors. These should be considered, with or without professional advice, before deciding if an investment is appropriate. The information contained in this presentation may include information derived from publicly available sources that has not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information in this presentation or any assumptions on which it is based. All amounts are in Australian dollars unless otherwise indicated. This presentation may contain forward-looking statements which reflect Ruralco Water’s views held as at the date of this presentation. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of Ruralco Water. Readers are cautioned not to place undue reliance on any forward-looking statements. Actual results or performance may vary from those expressed in, or implied by, any forward-looking statements. Ruralco Water does not undertake to update any forward-looking statements contained in this presentation