.png)
How Drought and Climate Change Affect Water Prices
Nothing moves the water market like drought. Zone 1A allocation prices swung from $36/ML in the wet WY2022/23 to $258/ML this season — and hit $485/ML during the 2019/20 drought. Understanding the climate drivers behind these swings is the difference between being positioned and being caught out.
The Mechanism: Scarcity Drives Price
The price chain is straightforward: low rainfall → low dam inflows → falling storage levels → reduced allocations → higher spot prices.
Lake Eildon is the bellwether for Zone 1A (Goulburn). Here's what Eildon levels translate to in price terms:
- Below 30% on July 1 — expect a bull market. The 2019/20 drought saw Eildon around 20%, with prices reaching $485/ML.
- 30–50% — tight market, prices in the $150–350/ML range. This is roughly where we are now (Eildon at 42% in April 2026, falling ~0.5%/week).
- 50–70% — neutral, prices $80–150/ML.
- Above 80% — bear market, prices below $100/ML. Triple La Niña pushed Eildon to spill and prices to $36/ML.
On the demand side, drought intensifies competition for the shrinking pool. Permanent plantings — particularly the ~100,000 hectares of almonds across the MDB, each needing 10–14 ML/ha — cannot fallow. Almond growers will pay whatever it takes to keep trees alive, which is why drought prices now spike higher than they did in the 2000s.
The Two Climate Signals That Matter
Two ocean-atmosphere patterns drive the rainfall that fills the dams. If you only track two things, make it these:
ENSO (El Niño/La Niña) is the primary driver of year-to-year rainfall variability across eastern Australia.
- El Niño — warmer central Pacific, shifts rain away from Australia. Eildon/Hume inflows typically drop 30–60% below average. Recent El Niño years: 2002/03, 2006/07, 2018/19, 2023/24. Every major price spike in the data coincides with El Niño.
- La Niña — cooler Pacific, enhanced moisture. Inflows 40–100%+ above average, prices collapse. The triple La Niña (2020–2023) took prices from $485/ML to $36/ML.
- Current outlook (April 2026): neutral-to-developing El Niño for WY2026/27 — a bullish signal.
IOD (Indian Ocean Dipole) is the second driver, and critically important for spring rainfall in Victoria and SA.
- Positive IOD — reduces spring rainfall (Sep–Nov). A positive IOD before a water year is the strongest single drought predictor. Current reading: +0.74, which is an active drying signal.
- Negative IOD — enhances spring rainfall. The 2010 negative IOD helped trigger the La Niña floods that broke the Millennium Drought.
The critical combination is El Niño + positive IOD — both pulling dry simultaneously. The 2006/07 and 2019 seasons were this combination, and both produced severe drought and extreme prices. The ENSO × IOD interaction table from the Bureau of Meteorology is worth bookmarking.
Long-Term Climate Shift
Overlaid on the ENSO/IOD cycle is a structural drying trend. The MDBA estimates that average Murray River inflows over the last 20 years have been nearly 50% below the long-term historical average. This isn't cyclical — it's a step-change in the baseline.
The practical effect is visible in the data. The price floor has ratcheted up decade by decade:
- 2000–2010: trough prices ~$30–50/ML
- 2010–2020: trough prices ~$50–80/ML
- 2020–2026: trough prices ~$80–120/ML
This is driven by three reinforcing factors: reduced average inflows, almond expansion lifting structural demand, and government water recovery (the Commonwealth Environmental Water Holder controls ~2,750 GL of entitlements, permanently reducing the consumptive pool).
What This Means for WY2026/27
With Eildon at 42% and falling, a positive IOD (+0.74), and El Niño developing, the setup for WY2026/27 is tilted bullish. Our central price outlook is $250–350/ML, with a bull case of $350–450/ML if the El Niño materialises strongly.
For irrigators, this environment favours securing water early in the season rather than waiting, maximising carryover from WY2025/26, and locking in forward contracts where available.
For a broader view of how prices work across zones, see our guide to understanding water trading prices. For the basics of entitlements vs. allocations, see our comparison guide.