Leaner times for Cargill


For a century and a half, Cargill has demonstrated the advantage of being private. — Bloomberg

CARGILL Inc, the largest privately owned company in America, has enjoyed a biblical bonanza – but leaner times loom.

As in the Pharaoh’s dream, the commodity trading giant has basked in seven years of fat profit thanks to the impact of the pandemic, war, inflation and geopolitical chaos on food prices. But, as in the prophecy, it now confronts a famine.

What’s bad news for Cargill is typically good news for everyone else. Agricultural commodity traders do well when food inflation surges.

Now, wholesale prices for wheat, corn and soybeans are falling, a boon for central banks like the US Federal Reserve trying to sustain economic growth by lowering interest rates. For Cargill, it means earnings have slumped to the lowest in almost a decade.

Keeping track of the billions of US dollars that the firm makes isn’t easy. The company, headquartered in a suburb of Minneapolis, avoids publicity.

The leaders of the Cargill and MacMillan families, who own the company via marriage, are a secretive bunch who decided a few years ago the public didn’t need to know how much they were making, halting publication of the company’s financial statements.

Still, Bloomberg Opinion took a look at a copy of Cargill’s most recent annual results, and discussed the numbers with family members, employees and others for this column.

All spoke to me on condition of anonymity to discuss private matters.

The only-for-insiders accounts show Cargill made a net profit of just US$2.48bil on revenue of US$159.6bil in its fiscal year through the end of May – less than half the record of about US$6.7bil it made in 2021-2022, and the lowest since the 2015-2016 fiscal year. Cargill declined to comment

End of a bonanza

Understanding the ups and downs of Cargill is important beyond just curiosity about the money that one of America’s richest but least-known corporate dynasties makes. With 165,000 employees worldwide, the company is key to the global food industry – a crucial supplier to brands such as McDonald’s Corp and Coca-Cola Co.

Nothing explains Cargill’s centrality to what we eat than its own assertion in a corporate brochure produced more than two decades ago: “We are the flour in your bread, the wheat in your noodles, the salt on your fries. We are the corn in your tortillas, the chocolate in your dessert, the sweetener in your soft drink. We are the oil in your salad dressing and the beef, pork or chicken you eat for dinner.”

The company has been a lucrative cash machine in recent years. Between 2017 and 2023, it reported combined net income of nearly US$27bil.

If the next seven years echo 2024, it would take home about US$17bil over that period – a lot less than in the past, but far from a catastrophe.

Cyclical downturn in food

But it’s much easier to get used to riches than modesty. The Cargill-MacMillan family has received on average about US$1bil in annual dividends over the past three years.

In its most recent fiscal year, Cargill paid its shareholders nearly US$1.2bil, according to the accounts.

From now on, the family may have to content itself with less than half that amount. For lesser clan members, who rely heavily on dividends, it would be a shock.

For Brian Sikes, who in January 2023 became the 10th chief executive officer in Cargill’s 159-year history, that’s a challenge. Privately owned companies can’t use their own shares to buy rivals, so acquisitions must be financed via retained earnings, bank loans and bonds. That creates a difficult balance between growth and payouts.

In need of change

With Cargill’s rivals growing, the pressure to keep up increases. Bunge Global SA, another US-based agricultural trading giant, is in the middle of a merger with the grain division of Glencore Plc, heralding increased competition. In the meat business, pressure is also growing.

Sikes, a 33-year veteran at Cargill, is well equipped to steer the firm through leaner times.

He rose through the ranks, starting at the company’s beef operations, a business infamous for its brutal competitiveness and razor-thin margins.

Starting Sept 1, he overhauled the company’s five divisions into just three lines: food, agriculture and trading, and a specialised portfolio.

The three units concentrate existing businesses rather than exiting markets, although Cargill is stepping away from some areas, including steel trading in China.

In an internal memo, he also promised cost-cutting and optimisation of capital investment. At the time, the firm said in a statement it had “laid out a clear plan to evolve and strengthen” its portfolio.

But Cargill probably needs more radical change, rejuvenating its centralised bureaucracy and allowing executives more independence to reinvent the business as the market changes. Will the owners allow it?

The company’s board of directors keeps tight control on what management can and can’t do, employees said.

The two key directors are David MacMillan and Lucy C. MacMillan Stitzer; insiders say they have a large influence on the rest of the family.

Cargill’s board of directors contains members of the two families linked by marriage that own the company, plus some high-profile former executives at other companies.

Would Cargill do better as a publicly listed company, as some rivals – and some minor family members – whisper?

For a century and a half, Cargill has demonstrated the advantage of being private.

If it ain’t broken, don’t fix it. But with each generation, the challenge of avoiding an initial public offering (IPO) increases as family members down the genealogical tree own a smaller share.

On paper, the Cargill-MacMillans are very rich; in practice, they own illiquid shares that make some of them completely reliant on dividends.

The family now faces lower payouts as profitability settles at a lower level than in recent years.

The pressure, thus, could increase to find new sources of liquidity.

In commodities, the years of plenty are always followed by the years of little. Whatever route it chooses, it’s clear that Cargill needs new thinking as the cycle turns. — Bloomberg

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. The views expressed here are the writer’s own.

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