Merricks Capital provides innovative investment solutions that deliver consistent performance for its investors while operating with financial discipline and prudent risk.
Our investment strategies include private credit across commercial real estate, agriculture and infrastructure and specialised industrial.
Established in 2007, Merricks Capital delivers a truly differentiated multi-strategy offering, with extensive investment capability and global experience spanning multiple asset classes.
Margin Squeeze in Motion: Consolidation Signals a Tighter Dairy Sector
Share
Opening prices for the 2025–26 milk season highlight why we reduced our exposure to farmgate dairy. While high farmgate prices continue to support on-farm cashflows, processor margins remain under pressure, particularly for bulk commodity exporters. As processing capacity exits the market, we expect the gap between Australia’s high farmgate prices and GDT-aligned New Zealand export pricing to converge over the coming seasons. This creates risk for a new vintage of dairy farm loans.
Key takeaways from the current pricing environment:
Australian processors focused on bulk commodity products such as whole milk powder remain uncompetitive on an export basis. Fonterra Oceania’s A$8.60/kgMS opening price confirms that Australian pricing is still well above export parity.
Processor consolidation accelerated through 2024: Beston’s liquidation reflected the pressure on smaller processors unable to absorb elevated input costs. Bega’s Strathmerton closure underscored the need for mid-sized operators to rationalise capacity, while Fonterra’s planned divestment of its Australian consumer brands marked a shift toward core ingredients and export markets.
Notably, we have seen banks return to farmgate lending since 2022, attracted by stronger milk prices, improved cashflows and stable land values. We remain cautious about deploying new capital into the sector given the risks of convergence to export parity (lower prices), and have reduced our dairy exposure from 19% in 2020 to under 1% today, with the final loan repaid last week.
With supply near a 25-year low (ABARES) and export parity closer to A$7/kgMS (internal estimate), some processors will close and better-resourced operators are pivoting to higher-value nutritional ingredients, but successful execution requires both capital and expertise.
Our senior loan to ProviCo is an example of how targeted transitional capital can support this shift, funding the redevelopment of the Dennington facility into a specialised nutritional processing site.
Source: ABARES, DairyNZ, Milk Value Portal
Climate Commentary
Recent seasonal variability continues to highlight the value of portfolio diversification. Inland NSW and northern Victoria have received 50–70% below-average rainfall (BOM), while northern NSW has experienced flooding and parts of WA and Queensland have recorded heavy rainfall events.
Looking ahead, BOM forecasts suggest rainfall across our portfolio regions will broadly align with long-term medians. Higher rainfall is expected across Queensland and northern NSW in late winter, though this is expected to fall in beneficial amounts. To date, our loans have seen no material impact of this seasonal variability, only a minor harvest delay reported by a Queensland-based small crop producer. This stability reflects the strength of a diversified, secured lending approach.
