Merricks Capital Agriculture Credit Fund Portfolio and Market Update – July 2023

The Merricks Capital Agriculture Credit Fund (the Fund) returned 0.9%* in July and 9.9%* on an annualised basis since inception. The FY23 final distribution of 4.0% will be paid in the third week of August 2023.

Underlying loan performance returned 92bps for the month with the Fund accruing 4bps for a once off loan restructure that occurred in June but recognised in July performance.
We’re seeing an increase in new credit opportunities for agricultural lending with existing bank customers seeking transitional capital solutions to scale operations. It’s clear many banks are overweight with agricultural exposure and exploring options to risk-transfer performing loans to make more capital allocation available for new credit. With drier conditions forecast, we’re targeting sectors that are less reliant on rainfall to meet production yields (e.g. horticulture with permanent water) and funding businesses where commodity price corrections have removed some of the downside price risk (e.g. meat and livestock).

There were no new loans settled in July. The Fund’s 2% allocation to an avocado producer that settled in June begun its harvest this month. The south-east Queensland business usually receives a price premium by supplying avocados during the tail end of the domestic production season. To date the business has achieved a $4/tray premium in a domestic market that has grown by 21% over the past two years (HortInnovation).

Due diligence continued on $120m of new loan investments across mixed-farming, meat & livestock and horticulture with a weighted average LVR of 57% and forecast investor IRR 11.4% (net of fees and costs). We continue to be highly selective around capital deployment, with funding demand outpacing supply across the market.

*These returns are stated net of fees and costs