The recent sale of a producer-owned inland terminal to an established grain company has raised questions about how well single point, independent elevator facilities will do in a rapidly changing grain industry environment.
Shareholders of Mid-Sask Terminal, or MST, of Watrous, Sask., agreed on Jan. 12 to sell their 10-year-old, 23,600 tonne facility to the Winnipeg-based grain firm Parrish and Heimbecker for slightly more than $7 million.
In an information circular distributed to shareholders before the vote, the company highlights difficult challenges that have arisen in recent years and warns of more difficulties if the Canadian Wheat Board loses its single desk marketing powers.
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“The CWB, in many instances, levels the playing field between large and small grain companies,” according to the circular.
“Any significant changes to the single desk powers of the CWB, regardless of whether it is positive or negative for individual producers, would drastically affect the ability of MST to be competitive in the marketplace.”
The circular also identified a number of other issues confronting single point shippers:
- Consolidation in the grain handling industry, leading to intense competition for market share.
- The introduction of more commercially based rail car allocation and shipping programs that disadvantage smaller shippers.
- Reduced service levels from railways.
- Increased competition for local product from new oilseed crushing and ethanol production facilities.
- Restricted access to export terminals at the West Coast.
- New incentives designed to encourage farmers to bypass grain terminals and deliver directly to mills and other processors.
The circular said the root cause of the decision to sell was financial difficulties incurred in 2001 and 2002, when the company lost $1.7 million and ran into trouble with its lenders.
The company stayed in business, but continued to struggle to regain lost equity in the face of below-average crop production and intense competition.
Eventually the company decided the best way to preserve shareholder value was to find a buyer, a process that culminated with the sale to P and H.
MST president and chief executive officer Les Saelhof, the only designated spokesperson for the now-defunct company, was out of the country last week and unavailable for comment.
However another individual familiar with the company, who spoke on condition of anonymity, said the issues that bedeviled MST, including the future of the CWB, are affecting all the independent terminals to varying degrees.
“Most of the inland terminals are dependent in some form on using the CWB as a marketing partner,” he said.
If the board loses its single desk, that will increase the pressure on the independents to affiliate themselves with one of the big grain multinational grain companies.
“I wouldn’t want to leave my financial well-being in the hands of a multinational, because they don’t have a very good track record of looking after the originators of their products.”
Garth Gish, chief operating officer of Prairie West Terminal of Plenty, Sask., said it’s hard to generalize about how changes in the industry are affecting inland terminals.
“Every terminal in every area is different,” he said.
Gish agreed there are many challenges facing single point shippers, but said it’s up to shareholders and managers at the facilities to adjust to new situations.
“I think it is possible to look forward and prepare for new trends,” he said, adding changes can often present new opportunities to those who are prepared.
As for the CWB issue, Gish said there’s no doubt it will change the way single point shippers will do business, but he doesn’t see it as a fatal blow.
Jim McKerchar, general superintendent for P and H, said while the future of the CWB is a crucial issue for everyone in the grain industry, he doesn’t think the sale of MST is indicative of what will happen to most of the independents if the board loses its single desk authority.
He said it’s difficult to predict how the small independent companies will be affected.
“I think there will be a sorting out process,” he said. “It depends on each company’s individual financial strength and on the will of the shareholders to remain in the business.”
McKerchar said P and H had been looking at the possibility of building a new facility in the Watrous area for some time, when it was contacted by MST about buying its terminal.
Given the amount of time it would take to build a new facility versus taking over an existing, relatively new facility, it was an easy decision, he said.
The new terminal will be the third largest of P and H’s 19 elevators, behind 44,000-tonne facilities at Moose Jaw and Wilson Siding, Alta.
