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5 September 2019
Water scarcity: Agriculture 7
Figure 9: Sensitivity findings
Total water expense to EBIT
Total water expense to NPAT
Total water expense to EBIT
Total water expense to NPAT
Total water expense to EBIT
Total water expense to NPAT
Source: Credit Suisse estimates * Full sensitivity available on request, broken down into half years
Figure 10: Sensitivity assumptions
The drought is alleviated with median
rainfall in 2H19, average temperatures
and minimal losses from evaporation
and transmission.
Class 3 licences are allocated in line with the
MDBA’s ‘wet conditions’ forecast (15 Aug 19),
starting at 79% and increasing to 100% by 1 Nov
19 when the impact of median rainfall from the
rainfall season is felt. Allocations continue at
100% out to 2021.
CGC does not need to increase its exposure to
the spot market as it receives its full entitlement
(2020/1), maintaining the ratio of 57%
entitlement, 15% hedge and remainder spot.
Forecast spot pricing for 2H19 replicates that of
Jun 19 actual trading data, decreasing by 20% in
2020 and 5% in 2021.
Drought continues with below median
rainfall in 2H19 (BOM outlook), warmer
than average temperatures and
moderate losses from evaporation and
transmission.
Class 3 licences are allocated in line with the
MDBA’s ‘dry conditions’ forecast (15 Aug 19),
starting at 73% and increasing to 100% in 1H20
when the impact of rainfall, albeit below median,
is felt as a result of the Riverland rainfall season.
Allocations continue in the same format as 2019,
with 100% for 1H and 87% for 2H, out to 2021.
In 2020 and 2021, CGC increases its exposure
to the spot market in response to allocations that
are >100%. Forecast spot pricing for 2H19
replicates that of June 2019 actual trading data,
increasing by 5% each year.
The drought worsens with well below
median rainfall in 2H19, warmer than
average temperatures and significant
losses from evaporation and
transmission.
Class 3 licences are allocated in line with the
MDBA’s ‘exceptionally dry conditions’ forecast
(15 Aug 19), starting at 55% and decreasing to
50% for 2020 and 13% for 2021 when the impact
of very low rainfall is felt.
In 2020 and 2021, CGC increases its exposure
to the spot market in response to allocations that
are >100%. Forecast spot pricing for 2H19
replicates that of June 2019 actual trading data,
increasing by 20% each year as water
availability tightens and demand rises.
CGC’s announcement of the purchase of 3000ML in Feb 19 for 2H19 & 1H20 has been factored into all scenarios; forecast hedge pricing is based
on historical and forecast spot pricing; citrus hectare growth continues in line with guidance.
Source: Credit Suisse estimates
Costa water diaries – recap
■ Costa water exposures: In Costa’s earnings downgrade in February, it stated that
57% of its citrus water usage comes from permanent entitlements, 15% is market
exposed but hedged and the remainder is purchased on the spot market. Costa also
stated that it purchased an additional 3,000ML on the spot market for 2019, owing to
the risk that it would not be allocated fully against its licence entitlements. In May,
Costa announced that water will cost another $2-3mn bringing total water citrus cost to
$5-6mn for FY19.