Rising Water Prices and Mixed Fruit Set Pose Challenges for Australian Agricultural Projects
Australian Agricultural Projects Ltd reports steady orchard health and harvest expectations amid rising water prices, while strengthening its asset base and maintaining robust cashflow in the December 2025 quarter.
- Orchard health remains strong despite a late flowering peak and mixed fruit set results
- 2026 harvest forecast between 570,000 and 640,000 litres, reflecting biennial cycle
- Water prices surge to over $400 per megalitre, significantly above budget
- Acquisition of remaining irrigation assets for $784,000 funded by operating cashflows
- Surplus operating cashflow of $930,000 supports equipment upgrades and debt reduction
Orchard Conditions and Harvest Outlook
Australian Agricultural Projects Ltd has delivered a reassuring update for the quarter ended 31 December 2025, reporting that its orchard remains in good health despite challenging climatic conditions. The late spring and early summer period was cooler and drier than usual, which, somewhat counterintuitively, helped the company keep orchard operations on schedule amid a broader heat wave affecting the region.
Flowering peaked later than normal in mid-November, with fruit set showing a mixed picture. Areas previously impacted by frost last season have bounced back with a very good fruit set, while the Picual variety, especially on the hill areas that yielded well last year, is underperforming. This has led management to forecast the 2026 harvest at between 570,000 and 640,000 litres, consistent with the orchard’s natural biennial production cycle where alternate years yield more or less fruit.
Rising Water Costs and Irrigation Strategy
A significant development this quarter is the sharp increase in water prices, with spot rates climbing to just over $400 per megalitre by the end of December. This is a dramatic rise from $110 per megalitre at the same time last year and well above the company’s budgeted $200 per megalitre for the 2025/26 season. Lake Eildon, the primary source of irrigation water, is currently only about half full compared to nearly 80% last year, forcing the company to seek an additional 600 to 800 megalitres to ensure full irrigation coverage.
Management is actively considering its water procurement strategy as the irrigation season progresses, balancing cost pressures with the critical need to maintain orchard productivity.
Asset Acquisition and Financial Health
In a strategic move, Australian Agricultural Projects acquired the remaining irrigation assets from one of its managed projects for $784,000 during the quarter. This acquisition, funded entirely from surplus operating cashflows, means the company now directly operates 285 hectares of orchard previously leased out, potentially increasing control over production and cost management.
Financially, the company reported cash receipts of $2.23 million for the quarter, aligning with budget expectations, and a surplus operating cashflow of $930,000. Operating expenses remain steady, and the company has used surplus funds to invest in equipment upgrades, including hydraulic system improvements on its harvesters. Term loan facilities have been reduced by $175,000, with $1.01 million still undrawn, and a new $315,000 trade finance facility was established to support equipment imports.
Looking Ahead
While the company’s operational and financial footing appears solid, the rising cost of water and the variability in fruit set, particularly for the Picual variety, introduce elements of uncertainty. The company’s ability to manage these challenges will be critical to meeting its harvest targets and maintaining profitability through 2026.
Bottom Line?
Australian Agricultural Projects stands firm amid rising water costs, but the 2026 harvest and irrigation strategy will be key to watch.
Questions in the middle?
- How will continued water price volatility impact the company’s cost structure and margins?
- What measures will management take if fruit set underperforms further, especially in key varieties?
- Will the acquisition of irrigation assets translate into improved operational efficiencies or increased capital expenditure?
