Puratone Corp., the third-largest hog producer in Manitoba and fourth-largest in the country, has filed for bankruptcy protection, raising alarm bells about a crisis in the hog-producing industry in Manitoba.
The company succumbed to rising feed prices -- most notably imported corn -- that started coming up in 2006 and then spiked dramatically this summer as a result of the drought-ravaged U.S. corn crop.
The company's operations will remain open as the court-appointed monitor, Deloitte, embarks on an effort to attract investors and/or sell assets.
But it will happen in a challenging market for the hog industry throughout North America. Earlier this week, Big Sky Farms of Humboldt, Sask., was forced into receivership. It is twice the size of Puratone.
Over the last decade, the Niverville-based company bulked up into a fully integrated operation after starting as a feed mill in the 1970s. Now it owns a sprawling hog-production operation with 41 barns dotted throughout eastern Manitoba north and south of Winnipeg, three feed mills and feed-retail operations with a total of 300 employees.
The company was producing about 500,000 hogs a year, accounting for more than six per cent of Manitoba's total production.
In a statement issued after a Manitoba court approved its Companies Creditors Arrangement Act application this week, the company said events that have caused it to restructure are the same that are putting increasing stress on the Canadian hog industry. They include:
-- the sharp rise of the Canadian dollar since 2007;
-- higher corn and soymeal prices due to intense demand related to the use of corn in the U.S. ethanol industry;
-- the implementation of mandatory country-of-origin Labeling by the United States, which has meant dramatically reduced prices for young hogs exported to that country; and
-- the recent drought that's caused feed prices to spike even more and is also limiting access to feed.
While the company and Deloitte attempt to find investors and/or sell off assets, Puratone's hog production will continue and there is no indication of significant layoffs.
The company owes about $93 million and is in breach of its loan covenants. According to court documents, it has lost about $36 million over the past four years.
"This is a sign of the struggles our industry is facing," said Karl Kynoch, chairman of the industry council Manitoba Pork. "No matter how big or small you are, you are losing money."
Kynoch said Manitoba producers are likely to lose about $150 million over the next six to eight months because of the convergence of negative factors.
Laura Rogalsky, a senior executive with Puratone, said the company would not comment beyond its prepared release.
In that statement, it said, "Our primary focus must continue to be employee safety, the care of our animals and the safeguarding of the environment."
Over the last few years, the company has taken several steps to rectify its failing financial situation after an acquisition spree that started in the early 1990s.
At that time, it entered into joint ventures with investors to establish numerous production facilities. Last decade, it amalgamated those joint ventures into corporate ownership and as recently as 2005 and 2006 acquired several other large hog-production operations.
Since 2007, however, it started to pare back. It sold its retail poultry-feed operation, reduced expenses by 20 per cent, cut staff by 16 per cent and wound down some U.S. operations.
The company is owned by a complex structure, including many private shareholders.
The secured creditors, the Bank of Montreal and Farm Credit Canada, are supporting the action and will continue to fund operations, but industry sources say it is unclear what will happen.
The Bank of Montreal is owed $40.9 million and Farm Credit Canada is owed $40.3 million. Puratone also owes the provincial Crown corporation, Manitoba Agricultural Services Corp., $5 million, as well as another $6.8 million under various lease commitments.
Regina-based Farm Credit Canada declined to comment, but issued a statement saying, "Puratone has been a longtime customer and we are concerned for the company and its employees. The company's decision to file for creditor protection was taken with the consent of all parties."
In 2011, Puratone had total revenue of $103 million, down from $130.4 million in 2009. Through the first 10 months of this fiscal year (to July 28), revenues were $87.4 million, but the company lost $9.5 million this year.