Blame the Alberta oil boom for the price inflation delaying the construction of a hog slaughter plant in Saskatoon.
And blame the Canadian dollar, the worldwide protein glut and high energy prices for the rest of the problems Maple Leaf Foods is having, the company says.
The company has had two poor quarters in a row, hammering its stock price.
“We made good progress in earnings recovery during our first quarter of 2006, as we addressed factors that challenged us in late 2005,” said Michael McCain, Maple Leaf’s president and chief executive officer.
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“However, as expected, protein markets were weak on a number of fronts coming into this year.”
He described the worldwide meat situation as “very, very challenging.”
While McCain spoke of “good progress in earnings recovery,” that was in relation to the bad results of its previous quarter, which knocked its share price down 18 percent in one day. Its first quarter 2006 earnings are about 20 percent lower than in the same period of 2005.
The company is trying to balance off higher energy costs through higher prices for its products, but its hog and pork operations earned only $27.1 million in January to March compared to $40.6 million in the same period last year.
Revenue from meat sales to Japan fell about 10 percent, due to poorer pork prices and a 19 percent devaluation of the Japanese currency.
A glut of meat on the North American market also made it hard to make money on pork and poultry in North America, the company said.
A 17 percent decline in hog prices was partially offset by higher prices for the company’s rendering products, but the agribusiness section of the company still suffered a 39 percent decrease in earnings.
Maple Leaf has “effective ownership” of about 22 percent of the hogs it slaughters, so any drop in the hog price hurts results in that division.
The company has also said that plans for a hog slaughter and processing plant to replace the old Mitchell’s plant in Saskatoon have been delayed because of higher than expected tender prices for construction, due to the shortage of skilled labour in the Saskatoon area.
The company may have to alter its plans to compensate for the cost and labour problem, it said.
Neil Ketilson, general manager of Sask Pork, said he was not surprised to hear that finding construction workers and higher costs were a problem for Maple Leaf in Saskatoon. The booming times in the oil industry are attracting workers from every industry.
It’s a problem for hog barn operators too.
“I don’t think there is any business in Saskatchewan that isn’t feeling the impact of the oil industry,” said Ketilson. “For us, labour is and has been an issue. It’s hard to find good, skilled people.”
