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Merricks Capital Agriculture Credit Fund Portfolio and Market Update September 2022

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

The seasonal outlook for Australian agriculture remains positive with the value of agricultural exports forecast to reach a record $70.3 billion in 2022/23, up from when we last noted forecast export earnings of $64.9 billion in May 2022. The key change relates to delays in the crop supply chain, pushing proceeds expected from the 2021/22 harvest into 2022/23 export performance.

This is consistent with what we have seen at a farm level from our regular visits and monthly borrower reporting, as crop proceeds push into FY23 due to delays in processing and logistics.

Key points to note as we look ahead to the summer cropping season and horticulture harvest are that fertiliser costs have not receded significantly since peaking earlier this year. The price of urea remains three times higher than historical averages and higher input costs will impact working capital requirements.

Seasonal conditions are one of the most important determinants of farm gate returns. In Australia, farmers are expected to benefit from negative Indian Ocean Dipole and La Niña climatic conditions. We continue to believe that downside risks relate primarily to crop quality downgrades and further supply chain delays. Globally, production conditions have deteriorated since June 2022. This has further tightened global grain supplies and has placed upward pressure on world prices.

One new loan was added to the Merricks Capital Agriculture Credit Fund in September. A $13.8m loan to a vertically integrated horticulture business in New Zealand, with a forecast IRR of 14.0%  (net of fees and costs). One existing horticultural loan was amended with further growth capital supplied to the borrower for development funding and the acquisition of a property. The LVR on this amended facility is 55% with a forecast IRR of 13.9% (net of fees and costs).

We progressed diligence on four new opportunities with an expected weighted average IRR of 14.5% (forecast, net of fees) at 61% LVR.

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