Cargill Inc. Business Information, Profile, and History

History of Cargill Inc.

Cargill Inc. is the largest private corporation in the United States. Long known as a merchant of commodities, by the early 1990s Cargill had become one of the largest diversified services companies in the country. In addition to merchandising grains and oilseeds, Cargill operates as a transporter of commodities; a supplier of feed, seed, fertilizer, and other products to agricultural producers; a processor of food ingredients (such as corn syrup and flour) and of brand name products (such as meat and poultry products); an industrial producer of steel, salt, and other products; and a financial and technical services provider. Its diversified operations became increasingly important when the trade in commodities suffered a prolonged downturn beginning in 1980.

Cargill's corporate philosophy, shaped by its participation in the grain trade, emphasizes secrecy and an intricate worldwide intelligence network. Robert Bergland, former secretary of agriculture, told the Minneapolis Star and Tribune that "they probably have the best crop-marketing intelligence available anywhere, and that includes the CIA." While secrecy provides an enormous operational advantage to Cargill, it creates problems as well. One frustrated journalist summarized Cargill as a "secretive, inbred and suspicious" company. Cargill's low profile has created no reservoir of favorable public opinion in difficult times. After becoming president of Cargill in 1957, an exasperated Cargill MacMillan complained that the company only received public attention when it was involved in a court case. As late as 1977, a company survey revealed that while 94 percent of farmers had heard of Cargill, only 49 percent knew what the company did.

William Wallace Cargill began his career in the grain business in 1865 in Conover, Iowa. The business grew as it followed the expansion of the railroad into northern Iowa after the Civil War. In 1875 William Cargill moved the headquarters of his company to La Crosse, Wisconsin. He formed several different partnerships with his brothers, Samuel and James. With Samuel he formed W. W. Cargill and Brother in 1867, which became the W. W. Cargill Company in 1892. James Cargill operated in the Red River Valley in North Dakota and Minnesota with a partner, John D. McMillan. In 1882 the partners sold their Red River Valley grain elevators to William Cargill in order to raise more capital. Then in 1888, James, William, and Sam Cargill formed Cargill Brothers. In 1890 this firm became the Cargill Elevator Company, headquartered in Minneapolis, Minnesota.

In 1895 William W. Cargill's daughter married John Hugh MacMillan, and later his son William S. Cargill also married a MacMillan. When the elder Cargill died in 1909, John Hugh MacMillan forced out William S. Cargill and took control of the company. An ensuing feud simmered for decades, but control of the company now rests firmly in the hands of the MacMillan family, although some Cargills still hold stock.

John MacMillan ran the company until 1936, leading the company through a difficult period after the struggle for power; not until 1916 was its financial situation completely secure. MacMillan was a cautious manager who established the rule that the company would not speculate in commodities, a careful policy that helped establish the company's reputation in banking circles--an important consideration since the large deals that became Cargill's mainstay required huge lines of credit.

After World War I, MacMillan took two steps that helped lay the foundation for the future growth of the company. Since its beginnings in 1865, Cargill had been based entirely in the Midwest, selling to eastern brokers. When brokers from Albany, New York, began to open offices in the Midwest, bypassing Cargill as a middleman, Cargill opened an office in New York in 1922. In 1929 Cargill opened a permanent office in Argentina to secure immediate information on Latin American wheat prices. In 1930 the Cargill Elevator Company became Cargill Inc.

John MacMillan, Jr., became president of Cargill in 1936. While maintaining many of his father's cautious policies, he also brought an imaginative and visionary quality to the company. During the Depression, Cargill invested heavily in the storage and transportation of grain, secure in the knowledge that a recovering economy would find Cargill prepared to reap maximum benefit. He also left his mark on grain transportation. Unsatisfied with the standard barge design, he and some associates designed a new type of articulated barge and submitted the design to shipyards. When no company would build the barges, Cargill established its own unit to construct them. Soon Cargill built barges at half the typical cost and with twice the capacity of standard barges.

At the same time, the aggressive nature of MacMillan's management style also created problems for the company, most notably in the September Corn Case of 1937. The 1936 corn crop had been poor, and the 1937 crop would not be available until October. The Chicago Board of Trade and the United States Commodity Exchange Authority accused Cargill of trying to corner the corn market. When Cargill refused a Board of Trade order to sell some of its corn, the board suspended Cargill Grain Company, the subsidiary that conducted trading, from membership. When the board eventually lifted its suspension, Cargill refused to rejoin. For decades, Cargill carried on its trading through independent traders and proclaimed its satisfaction with the greater security this method afforded. Nevertheless, it did rejoin in 1962.

By 1940, 60 percent of Cargill's business involved foreign markets, and World War II had a crippling effect on business. While Cargill did build ships for the Navy, this enterprise could not replace its lost international business, so the company began a major diversification program, entering into vegetable oil and animal feed. The two activities are closely related: pressing oil leaves high-protein meal, which is then used in animal feed. In 1945 Cargill purchased Nutrena, an animal-feed producer, thereby doubling its capacity in poultry and animal feeds. Corn and soybean processing were two of the most rapidly expanding agricultural areas in the 20 years after World War II, however, and oil processing soon outstripped the value of animal feeds. By 1949, Cargill had made a major entry into soybean processing, and its researchers were already exploring the value of safflower and sunflower oil.

John MacMillan, Jr., and his brother Cargill were determined to expand the company after the war, but in a cautious manner that minimized risk. Cargill took the lead among the major grain companies in efforts to combine a network of inland grain elevators with the ability to export large quantities of grain. Two developments in the 1950s helped to establish Cargill in world trade. In 1955 Cargill opened a Swiss subsidiary, Tradax, to sell grain in Europe. Eventually, Tradax grew into one of the largest grain companies in the world. And in 1960, Cargill opened a 13-million-bushel grain elevator in Baie Comeau, Quebec. This facility allowed Cargill to store grain for shipment during the months that winter weather closed the Great Lakes to traffic. The grain elevator also cut the cost of midwestern grain bound for Europe by 15¢ a bushel. In order to maximize profit, the barges that took grain to Baie Comeau hauled back iron ore. Also in the 1950s, barges that carried grain to New Orleans began to backhaul salt. Both practices would lead to profitable new enterprises for Cargill. Before the end of the decade, Cargill's sales topped the $1 billion mark.

Cargill became involved in grain sales to communist countries at an early date. In the early 1960s, Cargill began to sell grain to Hungary and the Soviet Union, while its Canadian subsidiary also played a significant role in trade with the Soviets. After a lapse in trade of several years during the late 1960s, Soviet leader Leonid Brezhnev resumed grain deals as part of his effort to improve the Soviet standard of living. At the same time, the United States, anxious to improve relations with the Soviet Union, eased trade restrictions. These developments set the stage for the famous grain purchase of 1972. The U.S.S.R. purchased 20 million tons of wheat--roughly one-fourth of the American harvest--of which Cargill sold one million tons.

While Cargill actually lost money on the sale, the ensuing change in the market was more important. The massive sale of wheat, combined with a worldwide drought, drove up agricultural prices and increased Cargill's profits in all areas of operations. Sales increased from $2.2 billion in 1971 to $28.5 billion in 1981. Together with Cargill's success in high-fructose corn syrup and animal feed, this boom financed a significant expansion: during that decade Cargill purchased 137 grain elevators; coal, steel, and flour companies; and Ralston Purina's turkey processing and marketing division.

The 1980s brought economic problems that slowed Cargill's growth. A 1980 U.S. government embargo on grain sales to the Soviet Union left Cargill long on grain. While the government provided support for companies that were damaged by the embargo, a rise in the value of the dollar and a debt crisis in developing countries further burdened American agriculture firms. Cargill continued to search for opportunities in the depressed business cycle. Typical of its approach was the purchase of Ralston Purina's soybean-crushing plants in 1985. Overcapacity in the soybean industry did not dissuade Cargill. Whitney MacMillan pointed out that when a business is not doing well there is more room for improvement, and Cargill remained confident that investment during hard times would reap major rewards during the next rise in the business cycle.

Despite periodic downturns, Cargill had exhibited an impressive compound annual growth rate of 15.8 percent sustained over a 25-year period, based on net worth (from $95 million in 1966 to $3.7 billion in 1991). Part of this success has been credited to its consistently strong management. Early in the 1930s, Cargill began one of the first management-trainee programs in the country. Cargill did not rely on business-school graduates but took trainees from a wide range of backgrounds and introduced them to the company's system. Cargill placed young executives in responsible positions quickly and groomed those who succeeded. This system proved its worth in 1960 when John MacMillan, Jr., died. For 16 years nonfamily employees ran the company under the leadership of Erwin Kelm. When Kelm retired in 1976, Whitney MacMillan, greatgrandson of founder W. W. Cargill, became chairman. Most upper-level administrators at the company were graduates of Cargill's training program, and these officers, like family members, took the long view in planning for the welfare of the company.

As Cargill increasingly depended upon nonfamily members to run it, the company faced several challenges starting in the mid-1980s that would force it to undergo its most dramatic transformation to date. From the mid-1980s through the early 1990s, Cargill consistently failed to meet its company-wide sales targets primarily because of continued difficulties in grain merchandising, a sector that had never recovered from the 1980 embargo. Cargill's successes had also led to a bloated operation in which ConAgra Inc., its biggest customer, had to purchase products from 18 different Cargill divisions. Chairman Whitney MacMillan and most of the other senior leaders were nearing retirement age with no clear successor from the younger ranks in sight. Finally, some of the family members were lobbying for the opportunity to cash in on Cargill's success through more than the relatively modest annual dividends they received from their stock.

With the help of consultants McKinsey & Company, MacMillan initiated a major reorganization of Cargill's North American operations in 1990. The previous organization along product lines was replaced with a "soft matrix" type of structure, which intermixed product line and geographical area management. In order to bring fresh ideas into the organization, Cargill's board of directors was overhauled to include five members from management, five family shareholders, and five outside directors (the first outsiders in 40 years). The structure was also intended to allow the board to mediate between family members and Cargill management.

Such mediation would become more and more critical since Cargill faced the prospect of its first nonfamily CEO since the Erwin Kelm era of 1960--76. Only two fifth-generation family members worked for the firm, and neither had enough experience to take over when MacMillan retired. Eventually MacMillan selected Ernest S. Micek, former president of Cargill's food sector, as his successor. Micek was named president and chief operating officer in 1994 before taking over as CEO in August 1995. Still, at age 59, Micek was anticipating a short tenure (especially by Cargill standards), since company rules mandated retirement at age 65. MacMillan remained chairman of the board.

Meanwhile, and amid false rumors that Cargill would finally go public, the issue of company ownership was at least temporarily settled through the implementation of an employee stock ownership plan in 1991. Family members were given the opportunity to cash in as much as 30 percent of their ownership stake in Cargill. It turned out that only 17 percent was sold, for a total of $730 million, funded through borrowing. About 20,000 Cargill employees in the United States were eligible to receive the resulting stock, ending a long history of ownership exclusively by Cargills and MacMillans.

To reduce Cargill's dependence on the perpetually fickle grain business, the company committed to a program of radical diversification. One aspect of this program was to no longer simply be a commodity merchandiser, but to process the commodities as well--what many call "moving up the food chain." Already an established meatpacker in the United States through its Excel subsidiary, which was acquired in 1979, Cargill opened a new plant in Alberta, Canada, in 1989 in the midst of a downturn in meat sales and became the top meat packer in Canada by 1992. The company also began producing brand-name products for sale to consumers, such as its Sun Valley Poultry chickens and turkeys in England and its Honeysuckle White and Riverside turkeys in the United States. Through these efforts, Cargill was attempting to gain ground on competitors like ConAgra, which had moved heavily into branded products throughout the 1980s. By 1993 Cargill was the third-largest U.S. food company, behind only Philip Morris and ConAgra, and its annual food sales had reached as high as $22 billion.

A second area of diversification was the development of Cargill's Financial Markets Division. Based on knowledge gained through decades of trading in the world markets, this operation supported the efforts of the parent company and its subsidiaries through a full spectrum of financial services. Started in the mid-1980s and expanded rapidly in the early 1990s, the division generated almost $100 million in earnings for the 1992--93 fiscal year out of the company total of $358 million.

By the mid-1990s, Cargill had surprised many observers by its diversity in both operations and the locations of those operations. In addition to being the top grain company in the world and the number three food company in the United States, the company also boasted the eighth-largest U.S. steel producer in its North Star Steel subsidiary, the top position in European cocoa processing, and the number one ranking among pet food processors in Argentina. No longer the family-dominated firm of previous decades, the company nevertheless seemed certain to remain one of the most powerful companies in the world.

Principal Subsidiaries: Cargill Citro-America, Inc.; Cargill Investor Services Inc.; Cargill Leasing Corporation; Cargill Marine and Terminal, Inc.; Cargill Petroleum, Inc.; Excel Corp.; Ladish Malting Co.; North Star Steel Co.; Wilbur Chocolate Co., Inc.; Seminole Fertilizer; Cargill NV (Belgium); Cargill Agricola S.A. (Brazil); Cargill Ltd. (Canada); Cargill Trading Ltd. (Korea); Cargill International S.A. (Switzerland); Cargill UK Ltd.