A lot has happened since our April update. From the 12-day flare-up between Israel, Iran and the US, to the unveiling of the One Big Beautiful Bill Act and a drop in interest rates. It’s been a busy, unpredictable period. A clear reminder that we’re operating in an uncertain world.
Interest rates
- Now that interest rate easing has started, the main question is where it ends this cycle. The RBA forecasts a neutral cash rate, one that neither stimulates nor restricts economic growth, at 3.2%, which is down from 3.5% earlier this year. This implies another 2-3 cuts, with markets expecting the next move in July or August
- Most borrowers sit on variable rates and stand to benefit in the short term. They could be let down if the RBA stays cautious amid global uncertainty and moves slower than the market hopes. The US Federal Reserve just kept the cash rates on hold for the 6th month in a row
- Rates have fallen across the yield curve since last year, particularly for shorter tenors. Risk remains at the back end with inflation and fiscal concerns keeping longer tenors more elevated.
- Previously we saw relative value in the 3–5 year part of the curve, which offered rates lower than the short end and a chance to lock in future rate cuts ahead of time. That value has now extended further out, with 5 years at 3.59% and 7 years at 3.80% both historically attractive
- For borrowers, this could be a window to reduce risk by fixing a portion of debt on medium-term rates. In an uncertain environment, it may be wiser to fix in a falling market than scramble in a rising one
Note: Foundation Agri Finance price loans based on the current Australian Dollar Interest Swap Rate plus a customer margin. Please contact the team to discuss our competitive fixed-rate options.
What we’re hearing
A new lending option, backed by deep roots: As a new name in Australian ag lending, we’re often asked about our background and what sets us apart. While our brand is new to this market, our team and our capital partner PGIM Real Estate, bring a long legacy to the table.
The Foundation team has deep ties to Australian agriculture, with experience spanning generations. Our principals have managed large-scale farming operations and agricultural loan portfolios both locally and abroad. From cropping and dairy to horticulture, we’ve learnt the value of long-term, relationship in lending.
That’s why we partnered with PGIM Real Estate, a leader in agricultural finance. PGIM has been lending to US farmers since 1898, with a team of 75+ ag specialists managing over AUD15 billion in ag debt. In 2024 alone, they settled USD1.1 billion in loans to farmers, agribusinesses and timberland operators across America.
Like Australia, US borrowers are favouring shorter-term fixed rates at this point in the cycle, with an average loan term around 7 years. The longest loan PGIM settled was 21 years, and the largest reached USD227 million. Recent examples include:
- USD25 million, 5-year fixed-rate loan extension for a long-standing family cropping business in Arkansas.
- USD98 million, 5-year fixed-rate loan to a new corporate customer in Idaho, spanning row crops, tree nuts, and fruit trees, secured in a highly competitive tender.
Here in Australia, we’ve also been active. Our customer base is growing as more farmers seek long-term, fixed-rate debt to complement their existing bank facilities. Whether it’s split banking, club deals or syndications, our loans are designed to work alongside existing lenders, offering borrowers certainty on interest rates and longer loan terms.
Our strength lies in combining the local knowledge of Foundation with the global capital and long-standing track record of PGIM Real Estate.
Make the most of business performance: Farming is a cyclical business and the smart operators use the good years to set themselves up for the tougher ones. The same logic applies to debt.
We recently worked with a New Zealand farmer who wanted to shift from rolling 2-year loans to a 10+ year facility. After several profitable seasons, they saw the opportunity to capitalise on their strong position in the business cycle, which coincided with strong lender appetite. Negotiating from strength, their timing was right to lock in a competitive, longer term debt solution that supported the next phase of growth. 
Locally, cotton is one industry having a favourable run. Boyce analysis shows that cotton farmers have enjoyed multiple above average years since 2021. Now’s the time to use that momentum and push for favourable terms and longer-term debt security. Lock in while performance and your negotiating position is strong, rather than wait until conditions turn.
The growing role of private credit: Private credit is one of the fastest-growing segments of the financial system and is playing an increasingly central role in financing the economy. Globally, the sector has quadrupled over the past decade, reaching USD2.1 trillion by 2023 (IMF). In Australia, the RBA estimates the local private credit market at around AUD40 billion.
Despite this growth, private credit, including in agriculture, remains a small share of total lending compared to the banks, and well behind global peers. In the US, for example, 67% of residential mortgages are now provided by non-bank lenders.
Like any expanding industry, private credit faces growing pains. Several mostly newer entrants in the commercial lending space have come under pressure from both investors and regulators. While these challenges aren’t systemic, they highlight an important point: not all non-bank lenders are created equal. When considering private credit the track record, sector expertise, and financial backing matter.
Global: Markets appear to have
shrugged off Middle East tensions. Even oil prices have erased the short-lived conflict premium. From here, expect data and fundamentals to come back into focus.
Globally, it’s a tug of war between cost push inflation and weakening growth. In the US, the US Fed’s preferred inflation measure, the PCE price index, jumped from 2.5% to 2.7%. This matters because inflation doesn’t trend, it compounds. The longer it stays elevated, the greater the risk it re-accelerates. For now, deflation momentum has faded.
Meanwhile, Trump’s proposed tax and spending package, the “One Big Beautiful Bill Act,” has reignited concerns around fiscal discipline in the US (and elsewhere). The idea of spending what you earn is out the window and the default response to overspending continues to be more debt.
US government debt now sits at a staggering USD36.22 trillion, with net interest payments reaching 3.2% of GDP. This is the highest since the 1990s and well above the 1.5–2.0% average of the past two decades. The US now borrows not just to fund programs, but to service existing debt.
The rising interest burden leaves the US highly sensitive to interest rate movements. ING estimates that every 0.10% rise in rates adds 0.10% of GDP in annual interest costs. No surprise then that Trump is leaning hard on the Fed to cut rates.
Australia: Australia’s latest monthly 
inflation data, which can be volatile, aligns with broader indicators showing price pressures are moderating. The key trimmed mean inflation came in at 2.4%, the lowest since November 2021.
It’s not all clear skies ahead though. The RBA is still forecasting headline inflation rising to 3.1% by June 2026, driven by global uncertainty and the unwinding of government subsidies.
On top of that, both Federal and State governments appear increasingly intent on replacing the role of private enterprise, pumping more stimulus into the economy. Add to that a mix of strong money supply growth (more money floating around the economy), wage increases above 3.5%, and labour productivity falling to negative 1.2%, and there’s a clear risk that inflation will again overshoot the RBA’s 2.5% target.
Quote of the update
‘The difficulty lies not so much in developing new ideas as in escaping from old ones’ – John Maynard Keynes
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