Two major pulse processors are running out of crop and eagerly awaiting new supplies from this year’s harvest to fill what is expected to be a strong upcoming export program.
“I have to tell you, carry-out stocks this year are negligible,” Murad Al-Katib, president of AGT Food and Ingredients, said in a transcript of a conference call about the company’s second quarter 2015 financial results.
“Stocks that are available are coming to market. There is nearly nothing left.”
AGT’s sales volumes for the quarter that ended June 30 were down 97,000 tonnes, or 23 percent, from the previous quarter.
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It was much the same scenario for Legumex Walker, which reported $81.6 million in special crops sales revenue, down from $97.6 million in the second quarter of 2014.
“The decrease was primarily the result of significantly lower sales volumes, which decreased by 30 percent to 83,900 tonnes from 119,200 tonnes,” company president Joel Horn said in a transcript of a conference call about the company’s second quarter results.
Strong margins offset reduced sales volume for both companies.
AGT reported adjusted earnings before income taxes, depreciation and amortization (EBITDA) of $22.2 million for the quarter, down from $24.4 million for the second quarter of 2014.
However, AGT’s gross profit per tonne and EBITDA per tonne were higher than the same period last year.
“Buyers in AGT’s key consumption and sales markets were willing to buy at the higher price levels to secure the small amounts of inventory that were remaining in advance of what we believe will be a significant volume of production coming on stream with the North American harvest currently underway,” said Al-Katib.
Legumex Walker also reported good margins for its special crops business, which should have resulted in $5.3 million of EBITDA for that segment.
“However, to account for ongoing global economic uncertainties, the company increased its allowance for doubtful accounts by $2 million, which resulted in a reported adjusted EBITDA of $3.3 million,” said Horn.
The company’s canola processing segment posted adjusted EBITDA of negative $2.8 million because of crush margins that were hovering near all-time lows for the period.
Horn said crush margins are dismal because of historic low prices for vegetable oil, a poor canola crop, a 10-year low in the Canadian dollar with respect to the U.S. dollar and a massive drop in crude oil prices.
Legumex Walker’s adjusted EBITDA for all business segments was negative $1 million compared to $6.6 million for the second quarter of 2014.
Al Katib expects a big crop despite the dry conditions. Yields will be below the last few years but slightly above the long-term average.
“I can tell you unequivocally this is not a crop failure,” he said.
Al-Katib’s forecast is at odds with a Saskatchewan Pulse Growers estimate calling for pea yields 25 percent below the five-year average and lentil yields 12 percent below the five-year average.
Al-Katib expects a good quality crop based on early harvest samples, as long as excessive rainfall doesn’t occur.
He expects a normal distribution of grades, which would be 80 percent of the red lentil crop in the top two grades and 15 to 20 percent of the green lentil crop in the top grade, “a big chunk” in the No. 2 grade and another 15 to 20 percent in the lower grades.
Al-Katib said AGT will have adequate supply to meet the anticipated robust demand for this year’s pulse crops. India imported a record amount of Canadian pulses in 2014-15, and he said the world’s largest importer could exceed that volume in 2015-16.
“We will set a new record.”
Al-Katib expects strong demand from Turkey, Syria, Iraq, North Africa, Egypt and Sudan.
As well, he believes the easing of tensions with Iran will boost demand for Canadian green lentils. The country has the potential to be the largest green lentil buyer in the world, he added.
