The low quality of this year’s crop will drive down grain handling margins in 2004-05, says Saskatchewan Wheat Pool.
The grain company is coming off its first profitable year since 1998, reporting net income of $5.02 million in the year ended July 31, 2004.
That was due in part to a big jump in grain handling margins, to $21 a tonne from $15.50 the year before.
But with a sizable portion of this year’s low quality crop likely to find a home in domestic markets, those margins will shrink in 2004-05.
Read Also
Forecasts point toward snowy winter
Even though it’s expected to be weak, La Niña often brings colder-than-average winters across the Prairies, with wetter conditions in the west and drier weather in the east.
“We’re expecting about a 10-15 percent decline in overall grain pipeline margins,” said Fran Malecha, vice-president of the pool’s grains group.
“We earn less margin on domestic business as opposed to moving it through the entire export pipeline, including the terminals.”
Grain industry analyst Ben Chim of Dominion Bond Rating Service said that while the financial community is pleased by the pool’s 2003-04 results, it will be watching the company closely over the next few months.
“This next year will be a unique challenge,” he said. “We need to see how the lower margins cause cash flow to go next year.”
The pool estimates that 35-50 percent of the prairie wheat crop will grade feed, due to frost and wet harvest conditions. It expects 20-25 percent will fall into the two top milling grades, compared with the usual 75 percent.
As a result of the late harvest, much less grain has been delivered into the elevator system in the first three months of the company’s fiscal year than would normally be the case.
Snow and wet weather have also prevented farmers from buying and applying fall inputs.
Chief executive officer Mayo Schmidt said that will all show up in the pool’s financial results for the first and second quarters of 2004-05.
“We expect a higher percentage of our grain volumes and agriproducts sales to come in the second half of the year,” he said.
