Predicting what’s going to happen in the grain industry months in advance is a risky proposition.
But that’s exactly what farm input suppliers like Philom Bios Inc., a Saskatoon-based inoculant company, have to do every year.
Some years it all works out, some years it doesn’t.
For Philom Bios, which manufactures and distributes products like JumpStart, TagTeam, N-Prove and Agrotain, 2006 will be remembered as a year in which it didn’t work out.
The company last week reported net earnings of $916,000 (26 cents per share) on sales of $4.8 million for the three months ending June 30, the crucial third quarter of its fiscal year.
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During the same period a year ago, the company recorded net earnings before extraordinary items of $1.6 million (45 cents per share) on sales of $7.4 million.
Calvin Sonntag, president and chief executive officer, said since the company traditionally makes few sales in the fourth quarter, the bottom line isn’t going to look any better at the end of the fiscal year Sept. 20.
“The reality is it’s not going to be a really great earnings year for Philom Bios,” he said last week.
“The good news is that in a very difficult market we’re going to remain profitable, and we’re encouraged by that.”
On the plus side, net sales will be the second or third highest ever. The company continues to successfully expand into the United States and Australia and significant progress in research and development could result in new products being available to farmers in the near future.
“We’re looking forward to some very important registrations that Canadian pulse growers and other producers will be very excited about in the coming year,” said Sonntag, although he declined to provide details.
On the negative side, the company has a huge inventory of unsold, time-sensitive product.
That’s where the ability to forecast the future comes in.
Back in late January and early February, when the company was making its production plans for 2006, things didn’t look too bad, said Sonntag. The company ramped up its pro-duction accordingly.
But three unexpected developments intervened.
- In February, lentil acreage was forecast to be down about 10 percent and total pulse and special crop acres down three percent. As it turned out, lentils plummeted by 34 percent while plantings of pulses and special crops dropped 12 percent.
- Spring flooding meant 1.2 million acres in northeastern Saskatchewan, a prime pea production area, went unseeded.
- Drought in the U.S. southern plains sent wheat prices on an upward tear, prompting many growers south of the border to switch acres to wheat from peas or lentils.
“We had predicted significantly higher growth rates for pea acreage in the northern plains and it simply didn’t happen,” said Sonntag.
When all was said and done, the company produced much more product than the market wanted, and since that product includes live microorganisms, it can’t be carried over to next year.
“We’ll have to dispose of it and eat the costs,” he said.
Meanwhile, the company is still waiting for the opportunity to argue its appeal against a July 2005 Alberta court ruling that it pay $1.3 million to Dow AgroSciences Canada in a dispute over the disposition of expired product.
The company originally expected that appeal to be heard in the spring of 2006, but that didn’t happen. Sonntag said both parties have submitted briefs to the court of appeal and he now expects the case will be heard this fall.
The company took a $1.2 million hit in its 2004-05 financial results as a result of the court judgment.
Sonntag said he’s optimistic about the outcome of the appeal.
“We expect to prevail and that will have a positive impact on our income down the road,” he said.
“It can only get better for us.”
