March 10, 2023

Merricks Capital Agriculture Credit Fund Portfolio and Market Update February 2023


The Merricks Capital Agriculture Credit Fund (the Fund) returned 0.8% in February and 9.5% on an annualised basis since inception.

Underlying loan performance was lifted by the Fund increasing its investment allocation to three existing loans during the month, deploying $19.2m of capital and reducing portfolio cash balance to 11% (of FUM).

During February we assessed and monitored the impact to New Zealand investments relating to “Tropical Cyclone Gabrielle”. The Fund has two loans in New Zealand (representing roughly 14% of the Fund’s FUM), and we have had ongoing contact with these borrowers to ascertain direct and indirect impacts on the businesses and associated security. The Investment Management team has been on ground at the higher risk site in the Hawkes Bay region and there has been no material damage to date. The Hawkes Bay orchard business expects to lose ~5% of established trees due to the cyclone damage and approximately 20% of its current apple crop. The business has insurance covering flood / storm damage and is in the process of claiming for any associated asset damage.

Food price inflation in New Zealand is expected to remain at elevated levels over the next 3-6 months due to the floods and cyclone impact. Strong food price rises are partly a function of higher input costs for farmers and producers of packaged goods across both Australia and New Zealand. We are closely monitoring the impact of higher input prices across the portfolio, with particular emphasis on post-farmgate processing assets which traditionally have high turnover and lower profit margins. Within the portfolio, we have seen many farmgate businesses benefit from price increases of 10-20% over the past 12 months. The Fund has an $9.0m investment in an Australian based egg producer which has negotiated an effective increase in price of ~15% over the past 12 months. This business recently completed a capital raise and is well positioned to capitalise on favourable market dynamics for the egg market over the 1–2-year horizon. The egg industry continues to manage low current supply with demand outstripping production.

Due diligence progressed in February on $30m of new opportunities under term sheet across three loans and preliminary assessment of $75m in our new investment pipeline, including potential acquisition funding for a branded small goods business backed by real estate assets and acquisition funding for permanent horticultural assets in Queensland.

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