Prairie farmers are used to seeing grain and livestock prices driven down by forces out of their control.
Now they can experience that same helpless, sinking feeling as they watch their investments in grain and food industry companies take a beating on the Toronto Stock Exchange.
Shares in publicly traded grain and food industry companies like Saskatchewan Wheat Pool, United Grain Growers and Maple Leaf Foods are being dragged down by factors unrelated to the actual performance of the companies, said Robert Gigiel, senior commodity specialist with ScotiaMcLeod in Winnipeg.
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“They’re not doing anything wrong,” he said. “They’re just being shaken by low commodity prices and by stock market conditions generally. Right now, everyone’s stock is going down.”
The TSE 300 index, which reflects the value of 300 stocks representing various sectors of the economy, has been dropping precipitously in recent months, losing 26 percent of its value since mid-April.
During that same period, Sask Pool’s shares dropped by about 32 percent, UGG’s by 15 percent and Maple Leaf Foods’ by 39 percent.
At the close of trading Aug. 28, pool shares were priced at $14.40, down from a high of $24.40 last November. UGG closed at $11.90, down from its December high of $16.70, while Maple Leaf settled at $13.10, down from an April high of $23.40.
Sask Pool vice-president Marvin Wiens said the company watches the share price closely and is concerned with the dramatic drop in recent months, but is trying to keep it in perspective.
“We’re really holding our own relative to the rest of the market.”
He said there is not much the pool can do about the factors driving down stock values across the board including low commodity prices, the weak Canadian dollar, international financial crises in Asia and Russia and a general lack of investor confidence in the Canadian economy.
“You try to manage in a difficult economy the best you can, as you do at all times,” said Wiens. “We did that before we had a share price to watch.”
Stock market analysts who track Sask Pool agree the drop in the share price doesn’t reflect on the company’s performance, although there is some concern about the short-term impact on earnings of the aggressive capital spending for the Project Horizon elevator construction project.
RBC Dominion Securities continues to advise clients to buy pool shares, projecting a one-year target price of $21. Scotia
McLeod and Midland Walwyn have recommended investors maintain their current holdings.
“I can certainly make the case that it’s a cheap stock on many measures, but as far as where I think the value is going, I’m still working on that,” said Christine Farkas of Midland Walwyn, adding the company’s long-term positive view of Sask Pool hasn’t been shaken by the recent drop.
David Vanderwood, of Odlum Brown Ltd. of Vancouver, issued a sell recommendation when pool shares dropped to $19.95 in mid-June, but he said at the current low levels, it may be time to change that.
“We’re definitely getting close to where we’d be interested again,” he said.
Gigiel said institutional investors aren’t about to abandon Sask Pool and the other companies like UGG and Maple Leaf in the wake of recent events.
“These aren’t gold mines or diamond mines or some faddish industry,” he said. “People have got to eat and food companies are going to be around forever. They just need to ride it out.”
The current woes in the market can be traced back in large part to the decision by Thailand in July 1997 to float its currency. It immediately plummeted, dragging down other southeastern Asia currencies with it and undermining the once-booming economies of the region.
Asian demand for commodities like oil, copper, gold and grain began to tail off, triggering a steady decline in world commodity prices. The Commodity Research Bureau’s index of futures prices of 17 commodities has declined 19 percent in the last year. That particularly hurts a commodity based economy like Canada’s, as investors move their money into safer places.
