April 18, 2023

Merricks Capital Agriculture Credit Fund Portfolio and Market Update March 2023


The Merricks Capital Agriculture Credit Fund (the Fund) returned 0.9% in March and 9.6% on an annualised basis since inception.

Underlying loan performance for the month was lifted with the Fund increasing its investment allocation to three existing loans during the month, deploying $26.7m of capital.

During the month, the Bureau of Meteorology (BOM) announced the end of the La Niña weather cycle experienced for the last 3 years. The BOM El Niño–Southern Oscillation (ENSO) outlook is currently neutral, but there are indications El Niño may form later in the year. This means the above average rainfall experienced in the last three years is unlikely to continue for Australian agricultural producers. However, the excellent water supply in water systems and high subsoil moisture will help buffer drier conditions for the coming season. Crop yields are likely to revert toward their long-term average while wheat and barley prices are likely to be supported at or above current prices due drier local conditions, tight global supply and strong global demand. Our communication with borrowers in the portfolio indicates the outlook for the 2023 growing season remains positive with above average grain crop prices supporting opportunities to reduce asset leverage in their businesses.

Red meat producers within the portfolio have also benefited from high water supplies in their livestock production systems but movement in livestock prices is dampening the outlook in 2023. Locally, cattle prices have responded to generally drier conditions across the eastern seaboard with the Eastern Young Cattle Indicator down 26% year to date and 40% off 2022 highs (MLA). With a generally drier outlook for 2023 we do not expect cattle prices to revert to record levels seen in 2022 despite the strong export demand for beef. In the global market, we expect a reduced US cattle herd and sheep flock, along with strong red meat demand from South Korea and China, to underpin demand for Australian red meat.

In March, the Fund’s $14.8m investment in a Hawke’s Bay apple business made progress on insurance claims relating to the impact of “Tropical Cyclone Gabrielle” from February. Approximately 5% of mature trees sustained damage and current harvest volumes will be 20% below original forecast. No impairment of investor capital is currently expected with the loan to value less than 65% and a term sheet for asset sales with an institutional equity investor, which will repay debt in full, signed by the borrower this month. One loan was restructured during the month, a wagyu cattle business with properties in VIC & WA. The $3m additional capital advance will assist the business with its operational strategy while it progresses with a loan exit via commercial bank refinance. The loan has a 54% LVR.

Due diligence progressed on over $125m of exclusive new investments across horticulture, infrastructure and industrial subsectors and preliminary assessment of approximately $250m in our pipeline.

Latest Insights