Saskatchewan Wheat Pool’s second-quarter results were not a surprise to some equity analysts who watch the company.
The whole grain handling industry has been hit hard by reduced world demand for grain. Canadian Wheat Board shipments are forecast to be 15.5 million tonnes this year, an amount not seen since 1988-89.
“With grain exports down so significantly, obviously it hammers that end of the business for them” said David Vanderwood of Odlum Brown, an equities analyst in Vancouver.
“The cycle is moving against them right now and whether this is the bottom it is too early to tell.”
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Vanderwood and other analysts said Sask Pool is burdened by a heavy spending program on the new elevator network and diversification into livestock at a time when cash flow is squeezed by the weakness in the world’s grains market.
“They already have a lot of debt so they can’t get too stretched. They will need a better year next year to keep the balance sheet in shape. That introduces pretty significant risk to the whole story,” said Vanderwood
Despite difficult times in the grain business, pool management has not delayed or scaled back Project Horizon, the $270 million project to build 22 giant grain handling and marketing facilities.
The wisdom of that decision will be clear only in hindsight, said a couple of analysts who wished not to be named.
However, given that all grain handling companies in Western Canada are building big terminals, it is difficult to see if the pool has a choice but to go ahead with the project, they said.
The analysts agreed the company’s fortunes will continue to be precarious for at least the next year while the global grain market and Asian financial situation slowly improve.
Sask Pool was not the only grain company to declare a second-quarter loss. Two weeks ago, United Grain Growers declared a $2.2 million loss on the quarter, also citing low grain movement as the problem.
