Hog industry analysts say a $50 million expansion to Maple Leaf’s Brandon plant spells the end to the company’s proposed $110 million slaughter facility in Saskatoon.
Florian Possberg, chief executive officer of Big Sky Farms Inc., one of Canada’s largest hog production operations, said in an environment where the appreciating Canadian dollar is squeezing the packer’s profits, it is not feasible for Maple Leaf to proceed with both projects.
“It probably makes sense to move that (Saskatoon) capacity to Brandon,” said Possberg. “Looking at it from a business model point of view, there is a fair degree of logic to that.”
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A new plant in Saskatoon would cost more than double Maple Leaf’s planned upgrades for Brandon. However, the Saskatoon plant operating on doubleshift would give Maple Leaf only the same capacity as it obtains by upgrading in Brandon and moving to a second shift there in 2007.
That doesn’t make good economic sense, said Possberg.
“It’s all about capital utilization.”
Linda Kuhn, vice-president of public and investor relations at Maple Leaf Foods, said the hog industry is going through tough times and the strengthening Canadian dollar has compounded issues for large exporters like Maple Leaf.
But any notion about the demise of the Saskatoon project is pure speculation, she said.
“We have not made a final determination. When we do, we will communicate it.”
Kuhn said the project is in limbo because building tenders for the slaughter and processing facility came in much higher than expected because of the hot western economy.
The company is looking at ways to bring construction costs in line with its initial expectations of $110 million for a facility capable of processing 20,000 hogs per week on a single shift, with the capacity to expand to 40,000 hogs per week using two shifts.
Kevin Grier, senior hog market analyst with the George Morris Centre, doesn’t know what will happen to the Saskatoon project, but he said it never made sense from the start when it was announced in July 2005.
“I don’t understand the thinking behind having another small plant on the Prairies when you’ve got a large one there (in Brandon) going to waste.”
He said Maple Leaf should have gone to a second shift in Brandon years ago and should never have floated the idea of a new facility in Saskatoon to replace the outdated Mitchell’s Gourmet Foods plant there.
“I never saw the rationale for it in the first place other than gobs of government money, which doesn’t necessarily mean it makes sense,” said Grier, referring to a $35 million commitment by the Saskatchewan government to assist in the construction of the project.
Some would argue the Saskatoon project makes even less sense in the current business environment.
Maple Leaf recently told investors it was “deep into planning stages of restructuring” to respond to its currency-related financial difficulties.
Officials said the company had substantial cost reduction opportunities and was considering new hog production business models that will likely result in redundant assets.
Grier thinks one of those redundant assets might be the company’s Winnipeg processing plant now that Maple Leaf is moving to a double-shift in Brandon.
