The Merricks Capital Agriculture Credit Fund investment strategy focuses on investments where land is the primary security.
There is currently a mix of high commodity prices, low supply levels and increased demand for land which has led to a steady increase in agricultural land prices. In the current portfolio, over 90% of underlying security is land. As the value of our security increases in line with property value growth, the Loan to Value Ratio (LVR), and subsequently, portfolio risk declines. Currently, our overall portfolio LVR is 60%.
Rabobank has released its 2021 Agricultural Land Price Outlook. The report outlines a “base-case forecast” for Australia’s agricultural land market. Forecasting agricultural land values will continue to grow for at least the next five years, Rabobank highlighted the sharpest growth is expected to occur in 2023.
Supportive macro dynamics and a low supply of properties have factored into the growth trend in property value. According to the report, 45% fewer transactions were reported in 2020 compared to 2019. At the same time, research has shown that farmer purchasing intentions are at the highest point in at least the past five years. According to Rabobank, 9% of Australian farmers are reporting that they intend to buy land within 12 months.
Another key factor supporting the property market is improvement in farm revenue. Also released recently, the Rabobank Rural Confidence Survey shows historically high levels of reported business viability, income expectations and investment intentions among farmers.
The survey highlighted that where farmers aren’t entering the property market to expand operations, they are reinvesting in their businesses to improve productivity and efficiency. Although current seasonal conditions are strong, producers are investing in infrastructure to help better manage climate variability in the future.
Rising land values have also contributed to a number of successful loan exits. This proves the strategy of the underlying liquidity of assets in the portfolio. The forecast continued growth in land value is central to our continued confidence in investing in agriculture.
