Despite poor rainfall over much of the Prairies this year, Saskatchewan
Wheat Pool says it intends to weather this lack of storms.
Pool chief executive Mayo Schmidt admitted to reporters and the
investment community on July 30 that times are tough, with production
expected to be 33 percent lower than the five-year average and 21
percent below last year’s lower-than-average numbers.
“This is the worst drought since the 1930s,” he said.
Schmidt expected the pool to be affected by fewer grain shipments,
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reduced crop diversity and lower farm input sales.
But he also insisted there are reasons to be optimistic.
He said that 92 percent of the pool’s grain shipments were delivered in
50 to 100 car unit trains during the first three quarters of fiscal
2002. The resulting transportation incentives helped win it one-third
of the Canadian Wheat Board tenders that were offered.
David Schroeder, an analyst who watches the grain industry in Canada
for Dominion Bond Rating Service in Toronto, said the pool has a few
advantages over some of its competitors. It has 20, 100-car loading
facilities, which Schroeder said is half of the prairie total. As well,
more than half its elevators are in areas that may have normal or
better yields this year.
The pool’s share of the western grain market climbed two points to 23
percent this year, a nine percent gain over 2001.
Schmidt said the company is aware of the tolls that cost cutting, asset
sales and elevator closures have had on workers and communities.
However, he said the pool will now be focused on grain handling through
high efficiency elevators, and farm supply sales.
Schroeder said the pool and most other grain companies have the
potential do well if the weather would improve.
In an average weather year he said the company would move eight to nine
million tonnes of grain in a 60-40 Canadian Wheat BoardÐnon board
split, which under normal market conditions would leave the company
capable of $130-$150 million in earnings before interest, depreciation,
taxes and amortization.
However, Schroeder said debt remains the pool’s biggest obstacle. The
company has $775 million in consolidated debt, he said, which has
significant servicing costs.
The pool says it has made all of its payments for this year and
advanced a $25 million payment for this coming November.
Schmidt said the early repayment is part of negotiations with lenders
that are under way to deal with how the drought is affecting the
company.
Four $5-million quarterly instalments of term debt will have to be paid
next year, but $150 million in midterm notes in the form of bonds will
come due in 2004.
“We are working on those issues already,” Schmidt said.
“We will have a plan to deal with those …. Clearly we have lender
support.”
A drought insurance program will also stabilize the pool’s income if
yields fall by more than 10 percent of average.
Even if prairie weather improves and normal conditions return for 2003,
Schmidt said the company would not see significant improvement on the
books until 2005, when grain inventories would start to rebuild.