From his office in Toronto’s downtown financial district, analyst David Schroeder helps define how the world sees the prairie grain industry.
It doesn’t always make him popular west of Thunder Bay.
Schroeder works for Dominion Bond Rating Service, a financial company which studies the grain industry and issues periodic reports rating the strengths and weaknesses of five of the six major firms. Family-owned Pioneer Grain Co. is not included because it releases no financial data.
Its last report, issued in February, caused a stir by concluding that big changes are looming in the grain-handling industry.
Read Also
Land crash warning rejected
A technical analyst believes that Saskatchewan land values could be due for a correction, but land owners and FCC say supply/demand fundamentals drive land prices – not mathematical models
“In the long term, there are too many companies in grain distribution, and mergers are needed to reduce the intensity of competition and build volume, size and economies of scale,” it said.
While the report didn’t predict who might be involved in mergers or takeovers, Schroeder said in an interview the companies can be divided into two distinct groups.
Some strong, some weak
Saskatchewan Wheat Pool and Cargill Ltd. are financially strong firms with very secure futures. United Grain Growers, Manitoba Pool Elevators and Alberta Wheat Pool “all have serious question marks.”
He said UGG has too much debt, high interest costs and a lack of terminal capacity. AWP has limited ability to raise needed capital because of its co-operative structure and MPE’s location, combined with higher freight rates, could reduce its grain volumes significantly.
However, he said the companies’ long history and strong customer loyalty do provide significant competitive advantages.
Those kinds of judgments can land even a financial analyst doing his job in the hot water of grain politics.
Ted Allen, president of United Grain Growers, says Dominion has a “superficial knowledge of our company.”
UGG has refused requests from the company to pay for the rating. “They have never done a serious look at our numbers.”
Gordon Cummings, chief executive officer of Alberta Wheat Pool, said the bond rating service is unsympathetic to co-operatives, doesn’t understand the principles of co-operative capital and doesn’t credit the success of U.S. agricultural co-ops.
“They seem to be on this kick that if you’re a co-op, it’s bad and if you’re on the stock market, it’s good,” he said.
Saskatchewan Wheat Pool chief executive officer Don Loewen said the Dominion report is a credible analysis and is taken seriously by banks and other financial institutions.
Schroeder defended his firm’s report. He said analysts meet annually with all the companies to discuss corporate strategies and the financial outlook.
