Alliance Grain Traders Inc. was coming off a strong quarter in which sales revenues and earnings were up substantially over the same time last year.However, president Murad Al-Katib had something else on his mind when he recently addressed investment analysts about the company’s first quarter results.His first words were a warning to analysts to expect slumping sales in the second quarter.He told them that importers are reluctant to buy lentils, the main crop handled by the Regina firm’s growing fleet of processing plants, at a time when prices are falling and growers are expected to produce a large 2010-11 crop.“All of this additional supply will present challenges,” Al-Katib said.Buyers are waiting for current crop prices of 24 to 25 cents per pound to approach the 20 cents per lb. price now offered for new crop contracts.“This convergence, while we feel is coming, has been slow,” Al-Katib told analysts and reporters during a May 17 conference call.Importers are buying only the bare necessities for fear of being caught with huge supplies on hand in an environment of falling prices.“This is a normal and temporary rationalization of demand that we have seen in years past,” Al-Katib assured the analysts.He said the sales will show up in the third and fourth quarters.“We’re still viewing a very strong year ahead of us,” he said.The company is off to a good start for the three months that ended March 3. Sales for the first quarter were $186.3 million, up 115 percent from the same time last year.Net income was $16.8 million, up 133 percent.“The strength of this quarter has really been attributable to capturing the opportunities we had identified with our acquisition and diversification strategy,” Al-Katib said.The biggest acquisition came Sept. 15, 2009, when Alliance bought all of the shares of the Arbel Group, a Turkish lentil processing company that also produces and sells pasta, semolina and bulgur wheat.The deal allowed Alliance to diversify its product offerings and geography, with 45 percent of its asset base now in Turkey.A few months later, on Dec. 31, Alliance acquired Parent Seed Farms Ltd. and Finora Inc.The company now has 12 processing plants in Canada, one in the United States and one in Australia in addition to its newly acquired Turkish operations.Alliance is upgrading the Finora assets, adding an optical lentil colour sorting line at its plant in Wilkie, Sask., and equipment to handle its B-90 chickpea program at its facility in Assiniboia, Sask.“They’ll be ready to go by the end of July,” Al-Katib said.Finora used to be heavily involved in shipping bulk peas, but Al-Katib said the upgrades are designed to move it toward higher margin product such as lentils, chickpeas and green peas for the canning industry.Al-Katib said the $76.7 million raised through an equity offering that was completed in April will be spent on acquisitions and equipment for beans, chickpeas, rice and pasta.The company is focusing on North Dakota and Minnesota as possible locations to expand its bean business. It plans to add a fifth production line to its Arbella pasta plant in Turkey, either buying or building a rice mill in Turkey and expanding its lentil and chickpea capacity by acquiring a business in South Australia. It is also considering entering the Indian market.An analyst expressed concern during the conference call with Alliance’s record-high inventory levels. The company has $130 million worth of raw, processed, split and packaged product in its warehouses.Al-Katib said the large inventory is the natural outcome of an expanding company and reflects the fact that regular sales made to Arbel now have to be recorded as an inventory transfer, since they are part of the same company. He said a significant portion of that inventory will be converted into cash starting in the second quarter.He was also questioned about what impact the Greek financial crisis would have on Alliance, which sells 73 percent of its product into markets in Europe, the Middle East and North Africa and has a substantial collection of assets in neigh-bouring Turkey.Al-Katib said Turkey has a strong debt-to-gross-domestic-product ratio compared to Greece.“Turkey has been through this crisis already back in 2001 with a major economic crisis and major correction in their currency,” he said.Al-Katib doesn’t see the “economic flu” in Europe affecting demand for staple food products in North Africa, the Middle East, the Indian subcontinent, Latin America and the Caribbean. Declining commodity prices boost overall demand, he added.
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