REGINA – Saskatchewan Wheat Pool is a sleeping giant that should emerge the dominant player in an industry cluttered with too many companies, says a leading bond rating service. And it predicted that Cargill Ltd. will be the next strongest.
Mergers of Canadian grain handlers are inevitable as the industry struggles with deregulation, said Toronto-based Dominion Bond Rating Service Ltd.
The company released its first ever study of the Canadian grain industry as a whole in January.
President Walter Schroeder said the study shows Saskatchewan Wheat Pool should be the dominant firm based on its size, strong market share, diversification into areas other than grain handling and its permanent equity base.
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“It’s a powerhouse that could become another ConAgra,” Schroeder said in an interview. “That could be their aim and goal.”
Schroeder said the pool and Cargill Ltd. are going to emerge as the two strongest companies as the industry adjusts to the loss of the transportation subsidies, less subsidized world trade, elevator rationalization, rail-line abandonment and publicly listed co-ops.
Cargill has been the best managed firm over the past 10 years, the study said. It also has the best balance sheet and the greatest diversification.
The study also rated Manitoba Pool Elevators, Alberta Wheat Pool and United Grain Growers. Schroeder found those three will likely be challenged by elevator closures, weaker balance sheets and, in the case of the two pools, an impermanent equity base.
Schroeder said industry trends to “deco-op” will put enormous pressure on the smaller pools. In the case of Alberta Pool, the study said the company has some advantages, such as a primary elevator market share of between 55 and 60 percent, but he added they doubt it will remain competitive while keeping its co-operative structure.
Schroeder said turning itself into a publicly traded company is “going to be probably the best thing that ever happened to Sask-atchewan Wheat Pool.”
“We think Sask Wheat Pool nipped a real problem in the bud,” he said because the number of aging farmer-members would have tied up too much equity. “They dodged a bullet.”
Schroeder said if the pool had always been on the stock exchange and there had been no subsidized freight rate encouraging the movement of raw materials out of Saskatchewan, the company would have been much larger than it is now.
“It would probably be five to 10 times bigger and the West would have a rip-roaring food processing industry.”
Schroeder said it’s not too late for that.
As well, Manitoba is going to be “the hog capital of the West,” he said, adding that manoeuvring among processing companies has already started.
The meat industry will move to the Prairies, just like it operates in the U.S Midwest, and he predicted many food processors will relocate.
“That’s where the industry belongs,” he said. “It’s most efficient.”
Dominion Bond Rating Service rates companies based on factors like profitability, balance sheets, cash flow and subjective factors like industry outlooks.
