A growing interest

THE CANADIAN PRESS ARCHIVES Enlarge Image

Insiders are seeing a healthy interest on the part of investors in agricultural stocks in Canada.

Considering how fickle equity markets are, getting the timing right for an initial public offering can make or break a deal.

If you're in the business of processing and trading specialty crops based in Western Canada, with customers around the world, this would be a good time to go public.

Enlarge Image

Brad Vannan: 'good support' (MIKE APORIUS / WINNIPEG FREE PRESS ARCHIVES)

That's why the principals of Legumex Walker Inc. are probably feeling pretty good about themselves right now.

The new company, which is to be based in Winnipeg, just completed such a share offering, raising more than $70 million. Formed from the merger of Roy Legumex of St. Jean Baptiste and Walker Seeds of Tisdale, Sask., Legumex Walker ships to 70 countries and is the second-largest specialty crop company in the country.

It's also a growth play with a good chunk of the new capital going toward construction of a canola-crushing plant in Warden, Wash., the first such canola plant west of the Rockies. Legumex Walker will own 85 per cent of that plant now under construction.

The fact that agricultural company IPOs are something of a rarity has a lot to do with the challenging cycle of poor prices and oversupply of ag commodities that has been the case for much of the last few decades.

But that dynamic is changing.

Curt Vossen, president of James Richardson International Ltd., said recently that the last three or four years was the first such run in his 35 years in the industry where "we have seen consistent demand-pull economics on a global basis for agricultural foodstuffs."

Prior to that, it was more of a supply-driven market, he said.

Jason Stefanson, head of Prairie investment banking with CIBC World Markets, one of the Legumex Walker underwriters, said there was good institutional and retail demand for the offering, despite the fact the shares are not paying a dividend.

"In today's market there is, generally speaking, much stronger demand for yield-oriented product," Stefanson said.

The success of the offering is a testimony to the perceived strengths of the company and the sector.

"The industry is going through a positive time," Stefanson said. "From a capital-markets perspective, interest in and appetite for agricultural stocks in Canada is very strong."

The fact that there really isn't that much to choose from was another reason the Legumex Walker deal worked.

These dynamics are taking place against the backdrop of a coming shake-up to the single-desk marketing of Prairie wheat and barley -- a $5-billion-a-year business.

One way or the other, by August next year the Canadian Wheat Board will no longer have that monopoly.

Legumex Walker's business will not be fundamentally affected by that, but the commercial relationships of many producers Legumex Walker deal with will be changing.

The combination of the dismantling of the CWB -- notwithstanding challenges that will result -- and the robust growth prospects in the ag sector is piquing investor interest.

And the wheels are turning over at ICE Futures Canada (formerly the Winnipeg Commodity Exchange).

Plans are well underway to design new red spring wheat and durum wheat futures contracts and a revised barley futures contract that will hopefully be in place when the new wheat board legislation is passed.

"We're very excited about the opportunity," said Brad Vannan, CEO of ICE Futures Canada. "We have very good support from the industry as a whole."

Over time, the Winnipeg exchange has built what is now the premier global canola futures contract. That's appropriate, considering Canada is responsible for about 70 per cent of the global canola trade.

Wheat futures contracts already trade from exchanges in Chicago, Minneapolis and Kansas City, but Vannan said he believes a western Canadian contract will be appealing to many elements of the industry.

Considering the limited access to public equities in the ag space, it just may be something else to satisfy some of that demand from speculators and investors.

And that's just what ICE Futures is hoping for, because for any futures contracts to be successful, they need the full support of speculators as well as industry players.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 21, 2011 B6