Cargill, America’s Largest Private Company, Faces Leaner Times
Cargill’s profit is waning as food prices drop. Family members may demand a change of strategy.
September 4, 2024 at 12:00 PM GMT+3
By Javier Blas
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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 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 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 dollars that the firm makes isn’t easy. The company, headquartered in a suburb of Minneapolis, eschews 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 $2.48 billion on revenue of $159.6 billion in its fiscal year through the end of May — less than half the record of about $6.7 billion it made in 2021-2022, and the lowest since the 2015-2016 fiscal year. Cargill declined to comment.
End of a BonanzaAgricultural commodity-trading giant Cargill reported weaker net profits in its 2024 fiscal year as wholesale food inflation pressures start to ease
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.” 1
The company has been a lucrative cash machine in recent years. Between 2017 and 2023, it reported combined net income of nearly $27 billion. If the next seven years echo 2024, it would take home about $17 billion over that period — a lot less than in the past, but far from a catastrophe.
But it’s much easier to get used to riches than modesty. The Cargill-MacMillan family has received on average about $1 billion in annualdividends over the past three years. In its most recent fiscal year, Cargill paid its shareholders nearly $1.2 billion, 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.
Cyclical Downturn in Food
The Bloomberg Grains Spot index, which tracks the price of wheat, corn and soybeans in the wholesale market, has fallen 50% from its 2022 record high
Source: Bloomberg
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.
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 specialized 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 optimization 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 centralized 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 say. 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.
Who's Who Inside Cargill?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.
Source: Bloomberg Opinion research
Note: Board of directors composition during the 2024 fiscal year. Bernard J. Poussot, a former pharmaceutical CEO, was a member until his death in May.
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 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. An IPO looks unlikely. But the company perhaps could launch a buyback program, allowing some family members to tender their shares at a discount back to Cargill, as it did in 1991-1992. Another potential avenue is to list a subsidiary — a route that Cargill has also used in the past, selling its fertilizer unit Mosaic Co. in 2011.
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. |
