Now working with Scoular | Business arrangement concerns Legumex’s canola plant in Washington
Legumex Walker has a new grain industry partner for its canola and special crops businesses.
The company terminated its relationship with CHS Inc. and entered into a new arrangement with the Scoular Co., which will now buy all the seed, sell all the meal and assist with oil sales at its Pacific Coast Canola crushing facility in Warden, Washington.
“CHS was a great partner to get Pacific Coast Canola launched and up and running,” said Legumex Walker president Joel Horn.
However, the company has decided to focus on sourcing and selling oil and meal made from non-genetically modified canola and non-GM high oleic canola, and Scoular was a better fit.
In addition, Scoular has invested $16.5 million in the special crops side of the business in the form of a loan that can later be converted into shares of the company at $6.75 per share.
It would give Scoular, a U.S. grain company with $6 billion in annual sales, a 13 percent ownership stake in Legumex Walker at today’s share value.
“I like the deal because it helps both parts of our business evolve further down our strategic plan,” said Horn.
Scoular has a significant presence in the U.S. Pacific Northwest, where Legumex’s canola plant is located.
The two companies will work together to convince growers in the area to increase non-GM canola production.
Production at Pacific Coast Canola has been constrained by poor seed supply because of lingering problems with rail logistics. The plant operated at 78 percent of capacity in the third quarter of this year.
The goal is to boost operating capacity beyond 90 percent, and Horn believes Scoular can help through its extensive logistics network and its longstanding relationship with growers in the Pacific Northwest.
CHS brought in train loads of canola from the northern United States and Canada but left local procurement to Pacific Coast Canola, which was an unfamiliar face for area growers.
“With the Scoular arrangement, we’ll see those acres increase even faster because Scoular is on the ground with a lot of people, a lot of assets, a lot of relationships,” said Horn.
He said expanding the supply of locally grown canola will be one of the biggest factors in increasing future earnings for the company.
Todd McQueen, senior vice-president of Scoular, said the company will still need plenty of canola from outside the Pacific Northwest.
“We do see a fair amount of that sourcing out of Canada,” he said.
The partnership in the canola plant allows Scoular to participate in the oilseed processing business without owning assets.
It has an extensive elevator and merchandizing network and other grain industry assets, but it isn’t big into owning processing plants.
“We have chosen not to do that,” McQueen said. “In some ways we feel we can serve our customers better if we’re not competing with them in those markets.”
The company likes the specialty canola approach at Pacific Coast Canola, with its focus on non-GM and high oleic oils.
“We do have a group of people (where) that’s all they do is trade identity preserved commodities,” he said.
Scoular also has an extensive network of canola meal customers in the Pacific Northwest and recently invested in a feed blending facility in Jerome, Idaho.
“This canola meal will feed nicely into that investment,” said McQueen.
Horn expects the partnership to expand overseas opportunities for canola meal sales, which will make meal revenues more stable.
Meal sales struggled during the third quarter because of an oversupply of distiller’s grain and a bumper U.S. soybean crop. Other markets will open up with Scoular at the helm.
“They’ve just got good marketing arms to be able to move that meal further afield. They can sell it into Asia,” he said.
“They’re really good at moving meal, and they really understand the quality of our high fat canola meal.”
Horn was vague about how Scoular’s $16.5 million investment will be spent.
“We’re actively working on projects and we’re going to have some exciting news for you over the next several quarters,” he said.
The projects will create new specialty products for health conscious consumers.
Horn was asked if that involves fractionating pulse crops into ingredients that can be used in a variety of food products.
“For you to make that assumption would make a lot of sense,” he said.