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Merricks Capital Agriculture Credit Fund Portfolio and Market Update August 2022

The Merricks Capital Agriculture Credit Fund returned 0.8% in August and 9.1% on an annualised basis since inception.

The seasonal outlook for the agricultural sector in Australia and New Zealand is encouraging with the Bureau of Meteorology’s ENSO Outlook indicating at least a 70% chance of La Niña reforming later this year. This is around triple the normal likelihood and will increase the chances of continued above-average rainfall for northern and eastern Australia during spring and summer. Agricultural producers will welcome another period of strong seasonal conditions to take advantage of above average commodity prices in most sectors.

High water availability and low irrigation water prices across the Murray-Darling Basin will also assist in sustaining above average agricultural production in Australia in 2022/23. The combined storages in the Murray–Darling Basin are 93% full; up from 82.5% at the same time last year. This is creating some of the best widespread water availability conditions in over a decade. The Merricks Capital Agriculture Credit Fund portfolio has four investments totalling $75m to businesses which produce irrigated crops and horticulture within the Murray-Darling Basin and conversations with these borrowers indicate all are set to capitalise from high storage volumes and sub-soil moisture.

On a portfolio level, underlying loan income has benefited from rising interest rates in Australia and New Zealand with our portfolio construction of predominantly floating rate loans (53% by value). No new loan settlements occurred during August. New loan due diligence progressed on four opportunities, with three forecast to settle in September, deploying $30m of capital with an average weighted investor IRR of +11% and <65% LVR. The favourable seasonal conditions and tighter credit markets are driving demand for acquisition finance with more than $500m of new opportunities in the $20m – $50m space, all senior secured over farmland and at LVRs within our lending appetite.

 

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