This week, Merricks Capital settled a $58m agriculture loan secured against seven grazing farms in northwest Tasmania, spanning 4,000 hectares. The 12-month facility refinanced an existing bank loan, enabling the borrower to maximise asset equity values as they complete structured property sales. Merricks Capital has a longstanding relationship with the borrower, having provided finance for its projects in 2021 and 2023.
This transaction reflects private credit’s increasing role in financing productive farmland, particularly as Australia’s retail banks reduce agricultural lending due to higher capital reserve requirements. Meanwhile, the agricultural sector continues outperforming expectations, supported by robust export demand, stable land values, and ongoing market dislocation.
Key Market Insights:
Weaker AUD is driving export competitiveness
The depreciation of the Australian dollar against the USD over the past year (down 9.1% since the September 2024 peak, Bloomberg) has significantly enhanced export margins across key agricultural sectors. With 70% of Australian agricultural production exported (ABARES) and the second-highest production value on record expected for 2024–25 ($88.4bn, +$6bn YoY), this is strengthening borrower fundamentals and outlook.
Red meat exports are hitting new highs
Strong US beef prices, driven by years of drought-driven herd liquidation combined with the weaker AUD (chart below), is currently providing a competitive landscape for Australian beef exports. Australian red meat exports surged in the back half of 2024 and are expected to reach new highs in 2025 – driven by demand from key trading partners, including the US, China, Japan, and the Middle East. Forecasts indicate beef and veal exports are expected to reach $13.9bn and sheep meat exports hit $5.3bn, which we expect to underpin farmland values and increase borrower appetite for scaling operations in key grazing regions.
Dairy market shifts and GDT climbing
GDT (Global Dairy Trade) prices are rising amid shifting Chinese demand and global supply constraints. In 2024, China’s UHT milk imports fell 24% YoY to their lowest since 2015 as domestic production increased (National Bureau of Statistics of China). However, China’s milk production declined 3% YoY, its first drop since 2017, signalling potential supply pressures. Meaningfully, whole milk powder imports more than doubled YoY in December, highlighting shifting demand patterns that should support GDT prices in 1H 2025. The uptick in GDT is particularly relevant to our Funds’ existing loan facility to ProviCo Australia’s Dennington dairy processing site, reinforcing a more positive outlook for Australian dairy processors than in 2024.
Agricultural land values have held their ground
Despite isolated corrections, agricultural land has outperformed other real assets over 2023–2024, reflecting its inflation-hedging properties and strong investor demand. Foreign investment remains a key driver, with US buyers behind Australia’s largest agricultural property deals in 2024, totalling over 265,000 hectares changing hands for $1.2bn (The Australian).
Summer crops, horticulture, and viticulture are in good shape through key regions
Favourable growing conditions across key regions are supporting strong yield expectations for major crops, including cotton, almonds, and wine grapes. While recent La Niña summers brought cooler, more humid conditions that disrupted harvests, the current dry summer has provided more stable conditions for growers. Temporary water prices in parts of the southern Murray-Darling Basin are trending slightly upward due to marginally drier conditions (Vic Water Register), but higher crop yields are expected to offset any increased water costs. Water pricing trends will remain a key factor to monitor throughout 2025.
As we progress through a significant repayment cycle, with over $1bn in expected loan repayments for 2025—including from the $150m sale of Melbourne Place Hotel—our focus continues to be redeploying capital into high-conviction sectors. We expect agriculture and infrastructure credit to remain key areas of opportunity, with strong borrower fundamentals, sustained export demand, and continued market dislocation driving attractive risk-adjusted returns.
Consequently, the Merricks Capital Partners Fund expects to increase agricultural credit exposure from 10% at the start of 2025 to 20–25% by calendar year-end and the Merricks Capital Agriculture Credit Fund plans to deploy an additional $300–500m, both leveraging a strong pipeline of opportunities.
With Australia and New Zealand’s retail banks expected to continue scaling back their agricultural lending, private credit remains well-positioned to support asset-backed borrowers in expanding operations and unlocking value in a rapidly evolving market.
