I'm sure many readers will have seen the recent news about the drought that is affecting large areas of regional New South Wales and Queensland.
Bunnings, owned by Wesfarmers Ltd (ASX: WES), ran a Friday sausage sizzle to raise funds for farmers whilst pubs have a 'parma for a farmer' initiative going. What farmers really need is a decent season of rain. But, it doesn't seem likely according to meteorological estimates for the coming season.
But, there is one business on the ASX that is benefiting from these dry conditions. Duxton Water Ltd (ASX: D2O) is a reasonably small business that owns water entitlements and leases them out to agricultural businesses. Australia has one of the most advanced water trading systems in the world.
Duxton Water just released its July 2018 monthly update, showing that the net asset value (NAV) per share rose by 5.09% in one month to $1.34. Over the past three months the NAV has increased by 8.16%, over six months it has gone up 12% and over 12 months it has risen by nearly 22%.
According to Duxton, early water trading has seen pricing of between $350 to $375 per ML in the Murray, which compares to $115 to $130 per ML last year.
Duxton said that 51% of its portfolio is leased with a weighted average lease duration of 4.9 years. The increase in pricing has seen an increase in interest of longer-term water contracts.
Water prices could continue to rise with July 2018 being the driest July since 2002, total rainfall was 51% below average. This has led to irrigators commencing watering crops and permanent plantings when this would not normally start until September or October.
Foolish takeaway
Duxton is currently trading at $1.31, which is a slight discount to its underlying value and it has a partially franked dividend yield of 3.6%. I think Duxton is a good 'alternative' way of getting exposure to agriculture growth and it's clearly one of the best ways to profit from the current drought as the water entitlements could continue to grow in value over time.
