 Okay, welcome everyone to the first of the risk management strategy. So I've got myself and Simo Turvanan who will be co-hosting this. Simo is also on the line. Simo, can you hear me? Yes. Okay. So we're going to run this a little bit different to the main presentation. This is a bit more of a question and answers. We're going to run through the case study and it's for people to be able to. We've got 54 participants. So we've got quite a few. Hopefully we can get to everyone's questions. As Rod touched on at the beginning, if there's any questions relating to any government policy, we've got Jared, I think. Yeah, Jared from Ju is also in the room. So I'll just point to him and he'll be able to answer any of those questions for you. So, Mars and Jake, we've engaged our person to deliver the content with this webinar. If you've got any follow-up questions, our email has been sent out. We're happy to follow up. I'll get to all of your questions here. They will be recorded so we can see who sent them and we'll endeavour to get to those at the end if we can't get to all today. But we've got 30 minutes. Presentation is probably going to take about 10, 15 minutes and then we've probably got 15 minutes for questions. So what I'm going to do is if everyone in the Zoom, how I'm going to run the questions, you can either use the chat function. If you just want to put your question in there, I'll go from the top and run through any of those and answer them as they come in. Alternatively, in the Zoom function, if you click on the participants, there's a section there where you can raise your hand. So if anyone wants to, I can unmute you and you can just ask a question live here and we can just have a discussion about it. Everyone's muted at present. Just to say so we don't have 100 people talking at once. But I'll unmute you if your hand's raised and I'll just run through the list for those who've got questions. So today we're going to look at a couple of... We've got two case studies and we'll just touch on the first one and see if we've got enough time. We'll go into the second one quickly. Simo's going to take over, Simo. I'll run through the slides if you are ready. Yeah, sure. Thanks, Stuart. I just want to reiterate the disclaimer Rod made in the early assessment that this is not financial or professional advice. It's general in nature and just a general overview of options that are available in certain real-world situations for you to manage your requirements. So basically the first case study we are looking at is... Well, a situation where many of the growers I would envisage are right now. So they have some allocation left on their account. So in this specific example, they have a 500 megaliter glass tree entitlement in the SA Murray have 100 megs left on the account and they are just weighing their options in terms of what do they want to do with that excess water. So basically we're going to cover three broad options. One, use your own glass tree carryover capacity to bring that water across. Option two, park water in the state either in New South Wales or Victoria and return to South Australia next year. And the third option would be to sell that remaining allocation now and contract forward water to be delivered next year. So we're going to have some examples of the indicative cost of each option and in the subsequent slides. So if we move on to the next slide, Stuart, first looking at the option number one. So if you're using your own 20% carryover capacity, obviously there are many pros there. The most important ones being, well, there is no cost associated with using your own entitlement to carry water over. And it's also automatic. So given that you have submitted your water meter readings by the end of July, you don't need to apply carryover. It is automated. However, there are some considerations you should be mindful of. Most importantly, the risk of spill. So according to the private carryover rules in South Australia, Mari, if class three announced allocation next year increases to over 80%, the water that would take your account above 100%. So carryover and allocation combined will not be available for that year, but it will roll over to the next year. And it may be available then if the 21-22 season is set to open at less than 50% allocation. But there is a risk that the water you carry over may not be available for you next year if allocations for class three increase to above 80%. Also, the timing of the carryover as Jared indicated in the previous session, it won't be available right from the get-go July one in the next water year. So it does a couple of months wait period before you can actually access. So if you need water before that, that depends on your individual situation. Like some growers might have a very stable water requirement month on month, whereas some other crops, they don't need water that much at all in July and August, but it may be a consideration. Also, consideration, if you have more water, more excess water at the moment on your account, more than 20%, you'll need to park that water elsewhere anyway, because 20% that's the maximum you can carry over with your essay entitlement. And obviously, if you don't have excess water on your account right now, you need to buy that from the market and that will require some cash to do so. Then the next option, Stuart, if we move on to the next slide. Park water in the state and return to South Australia next year. So we have many questions already in the previous session about how does this happen? What are my options? We've had some questions if parking in Victoria is any different to parking in New South Wales. So we're going to cover all of those in the examples we're going to have in the next couple of slides. But generally parking water, it's a fairly straightforward process to protect your excess allocation water. You want to carry it over. It's basically a matter of contracting someone else's carry of a space, and it's all done via allocation transfers. So you basically move water out of your account, someone else's account, and then return it the next year. And it is possible to get that water returned to you early in the new season. This is all determined by the specific contracts you make for parking, but typically getting that water delivered early on in the season in July is possible. However, there are some considerations you need to be mindful of with this option as well. Importantly, can you find suitable holders or counterparties to park your water in terms of risk of spill? And the risk of spill, it varies between states, Victoria and New South Wales, but also the entitlement types in Victoria. So for instance, lower risk entitlements such as Victorian low reliability entitlements in the Zone 7 Murray Blow joke, they typically attract a higher price for that service simply because it's basically risk-free in terms of spill risk. Whereas all contracts were places. So the party who has that water they want to place on someone else's account, if they bear the spill risk comes with a lower cost, but it may result you in not getting that water back or you having to pay back water to the holder if spills occur. And also the zone where you park the water is important because of the trade limits. Rod and Stuart introduced in the previous section. So for instance, if you park water in the Murray Bidgie or in the Goulburn or above the joke, these trade limits may mean that getting that water transferred back to South Australia may be compromised. And also there's a 5% evaporation loss in all water that is carried over in Victoria. In New South Wales, there is no evaporation loss, but finding carryover space that is secure may be harder to find. And in general, what is the total cost for Megalita for this service? What are your options? Are there cheaper alternatives? So we're going to have a couple of examples in the next two slides, but just a refresher on the interstate carryover rules, which are really important to acknowledge when you park water. So they vary between entitlements and the catchments. So in the Victorian Murray and Goulburn, with high and low reliability entitlements, you can carry over 100% of the entitlement volume. However, if the volume you carry over and the announced allocation for your entitlement, if they exceed 100% of your entitlement volume, the excess water goes to a spillable account, which can only be accessed when a low risk of spill is declared. And this is a major consideration if you carry water over with a high reliability entitlement, because those are typically yielding allocation throughout the year. So if you carry over, for instance, the full 100% of your entitlement and you receive some allocation, any excess water goes to a spillable account. And if the storage is spill, if the authorities declare, if the storage is spill and spill in the human dark mouth, no, sorry, it's just like him. Yeah, you might lose your water. And this happens every now and then, like in 2016, 2017, when we had major inflows, all of the water that was carried over using a high reliability entitlement, it was written off because the storage is spilled, basically. And also the 5% evaporation risk, evaporation loss is a consideration. In New South Wales, just quickly, Mari and Maramichi, up to 50% of the general security entitlement can be used in the Mari for carryover and 30% in the Maramichi. In the Maramichi allocation plus carryover cannot exceed 100% of the entitlement volume. In the Mari, it's 110%, which means that there's a secure, guaranteed 10% proportion of the entitlement that cannot spill. So that's secure. If your water is parked using that guaranteed spill risk-free proportion of the entitlement, it cannot spill. There's no evaporation loss. So all of these things, they are important to recognize. And the contracts for parking, they vary depending on who bears the spill risk. So the third option, you can sell your remaining allocation, basically get a cash injection right now. You can secure some forward water for next year. And the pro is that there is no risk of spill that you need to factor in with forward water. There's a volume that is guaranteed for you in the next year. And also, you can lock in the price now. You have to pay a deposit. Typically, it's about 20%. It depends on the service provider. And then you pay the rest upon delivery of water next year. For consideration, there's a price premium for forward water. Typically, like we're going to have some examples later on, but it can be a significant premium to current spot market price with forward water. Also, the zone of delivery. Again, trade limits might have an impact in terms of returning that water. And also delivery time. So if you need water early on in the new year, you need to find a seller who can commit to getting that water to you in June, August, September, and then maybe price differences for different delivery times. So then if we move on to some indicative examples, what is the actual cost of using these options? And I should stress that these indicative calculations, they are exclusive of all brokerage fees, so commission and admin fees used by the brokers and intermediaries. They vary between service providers, but basically as a rule of thumb for both forward water and parking, the fees would be fairly similar. You can add a couple of dollars per megaliter, maybe three, four dollars per megaliter to the cost estimate we have here in these slides, but you need to discuss with your broker about the actual broker fees that they charge. But basically these examples, they outline some options, parking in Victoria, parking in New South Wales, and selling allocation now and buying forward water. So basically, you know, the cost comes from the parking cost. So we estimate here in this example that the cost to park the water is $60 per megaliter. And we assume here that you don't have to worry about the spill risk here. So you found some parking space where the holder will bear the spill risk. We also assume that you can find parking space in a location where it can be returned to you in the new year without trade limits having an impact. So in addition to that actual cost off of the parking space, there are fees, just the regular application fees, transferring water out of your South Australian account to Victoria and then back. So two sets of fees both when you place the water and when waters return. And transfer fees for next season, they are bound to change. Typically, they increase a bit year on year. This is a simplistic example. If the cost of parking is the same in New South Wales and in Victoria, they will end up, you know, with a total cost per megaliter of roughly $70 per megaliter. It is important to acknowledge that you will lose that 5% in Victoria for your operation. So you get 95 megs returned. Whereas in New South Wales, you get full 100 megs returned. If we compare this cost to, you know, selling your allocation now, if you can get 250, I know the market has softened today to close to $200 per megaliter. But if you could get 250 and if you could lock in forward water at 500, you know, the total cost of the megaliter would be 250. So in this example, it's much cheaper to use parking compared to forwards. However, if we go to the next slide, you may also need to factor in the 5% loss. So there's an opportunity cost associated with that, you know, in a way that you won't get back to full 100 megalitres. And the opportunity cost comes from a situation where you could basically sell that 5 megs to the market right now if you can get 250 of that. Basically then, no, sorry, that's actually for 200. But anyway, if you factor in the opportunity cost, then parking in New South Wales is actually more affordable. But it may be harder to find parking space in New South Wales that is secure. Well, in the next slide, hypothetically, what if the forward price actually comes down because the spot market has softened? What if the forward market softens as well to $300 per megaliter? Well, in that situation, it actually might be cheaper for you to sell your remaining water and contract forward water. The unit cost comes to $53 per megaliter in that scenario. But it all basically comes down to if the forward market softens or not. But there are many considerations when you want to compare these options. Then if we look at the last example, what if you're happy to bear the spill risk? Because, as I mentioned, the cost of parking when you bear the spill risk is much lower. It can be as low as $5 per megaliter if you park your water in Victorian high reliability entitlement. So obviously then the cost is much lower. Sub $30 per megaliter in this example in Victoria or in New South Wales, if you're happy to take the spill risk, the unit price is much lower as well. So if you're happy to take the risk, the cost of the product is much lower. However, as I mentioned, there are a couple of considerations like the in Victoria. If you park your water this way when you bear the spill risk, depending on the contract, it might stipulate that you can only get that water back when the low risk of spill is declared by the Victorian government. And the timing of this varies. Like this year, because it was dry, it was declared first of July. So the first day of the season. Historically, it's been between July and February. So it may mean that you won't get your water back anytime soon. Are you happy to take that risk? That's up to you and your risk profile. Same with New South Wales. It depends on the contract you have signed up for, but you may end up not getting your water back or you might have to pay back the water that's spilled from the holder's account. So in this situation, if you're happy to take the punt, you might also just want to consider using your own carrier space because there's no cost there. Yeah, you might still lose access to that water next year, but it's free. So it comes down to your individual risk profile, also your financial position. You know, if you have access to different products and the cost that is associated with them. But there are many, many considerations to factor in here. Stuart, should we take questions now? Yeah, I think so. It's 21 minutes, so we've got about 10 minutes left. There's a couple of questions come through in the chat. We've answered a few of them. Higher liability versus low reliability carryover. I think we touched on that briefly. Yeah, basically the benefit of carrying over with low is related to that risk of spill. So there's a very low likelihood of you losing any water if your water is parked in the Victorian low reliability entitlement simply because these entitlements, they don't get allocation. Once, you know, ever has Victoria Murray low reliability received an allocation and that was 5% in 2016, 2017. So that means that water is very unlikely to go to that spillable account. And therefore the risk of losing water that is carried over or parked, it's very low. And, you know, touching on that, yeah, there's a question if an irrigator needs to be aware of interstate spill rules. Yes, broader speaking, yes, it's at least important to acknowledge these so that you can ask your broker or exchange or intermediary about these. They should be aware of all of these. They should know how water accounting works and what is the risk of spill. And they should be able to explain to you, or if you do this, do this way, park it in high reliability and Victoria low reliability in Victoria, what's the difference? Is there a risk for me to lose this water? The same with New South Wales general security. And there's another question. Well, what is the spill risk on Victorian high reliability? Well, it's basically a risk of the storages filling up and water spilling from the carrier of all the spillable accounts. So if we get major inflows, the storages actually are filling up and spilling that way. Water on the spillable accounts is the first water that's going to be ridden off. So that's basically the spill risk. At the moment, the spill risk in the Victorian Marys, it's about 50% that's announced by the Victorian government. So basically, you only get access to water on that spillable account when that spill risk goes to below 10%. So that's when they declare low risk of spill. And then that's when all water from the spillable accounts is available to you. Then there's a question. Is there a deadline when interstate trading will seize for this water year? The hard deadline is the last day of season, the day of June. However, there is some advice from SA department. And if Charity is on the call, he can come into that, I suppose. Simo, I could provide a bit more detail about upstream as well. So on the Moron Bidgie for any interstate trades, it's 11.59 p.m. on the 30th of April, 2020, New South Wales, Murray. Again, 11.59, but the date is different. That's at 30th of June, 2020. Again, 11.59 is the deadline. And in Victoria for all systems, it's the 16th of June. Jared. I think we've got time for one more question. Simo, did you want to, I think, there's one in there. If water is parked from Genviness, if water is parked upstream, when it is brought back, can the water be used in the next season more than 100% i.e. allocation plus parked water? Well, Charity, you may want to comment on this as well. My understanding is that, yes, you can, unless your site use limit has a volumetric limit, which dictates that you can only use a specific amount. But, Charity, do you have comments on that? Yeah, that's correct. Yeah. So yeah, if you have, you know, spare room under your site use limit, it is possible to use more than 100%. Yeah. Okay, wonderful. I think we'll probably wrap that up here. I know there's a couple more questions. We will endeavor to respond to those. I've got a copy of those questions. I can see who's answered them and we can provide them back through the emails of the registration. More than welcome to stay. We're just going to close for five minutes and everyone from the other session will be coming into here. More than welcome to stick around for again. But thank you everyone for joining.