The recipe for making money if you’re a commodities trader is simple: buy natural resources in one place and time and sell them somewhere else later — hopefully making a buck by exploiting the difference. Follow that recipe successfully many, many times, and the profits can be enormous, especially for the biggest players.
Consider Cargill Inc., the commodities giant that’s also the largest privately-owned company in the US. It reported a net profit of $6.68 billion for the fiscal year ending in May — the most it earned annually in its 157-year history — according to a copy of its accounts reviewed by Bloomberg Opinion. That’s a 35% increase from the previous fiscal year, which had also been a record. Revenue in the latest fiscal year rose to $165 billion, from $134.4 billion in 2021.
While the recipe for hauling in that kind of money is simple, it also takes nerve. Commodities markets have been wildly volatile recently. The supply-chain chaos sparked by Covid-19, followed by the Russian invasion of Ukraine, triggered historic price gyrations — and an opportunity to make eye-watering profits in markets from wheat to oil. Big energy companies are already targets of some American and European legislators who have accused the giants of profiteering from political and social turmoil. There’s a good chance that commodities traders such as Cargill, flush with historic profits, may also wind up as political targets.
Cargill, controlled by two billionaire families linked by marriage decades ago, is one of the most lucrative cash-machines in corporate America. As a privately-owned company, Cargill doesn’t disclose its accounts publicly and it has quietly multiplied its earnings by nearly 20 times over the last two decades, according to financial statements I have reviewed. The company declined to comment for this column.
With some 155,000 employees across 70 countries, Cargill is the “C” in the vaunted “ABCD” of the agriculture industry. The other members of that storied club are Archer-Daniels-Midland Co., Bunge Ltd. and Louis Dreyfus Co. — and they have jointly dominated grain trading for more than a century.
If Cargill was a publicly listed company, it would be among the largest in America. Archer-Daniels-Midland is publicly traded and currently boasts a price-to-earnings multiple of 13.29. Using the same metric, Cargill would be valued at about $90 billion, giving it a market capitalization on a par with Goldman Sachs Inc., and ahead of Citigroup Inc. and BlackRock Inc.
What lies behind that success? The crazy market moves over the last couple of years surely have helped. Cargill also successfully overhauled and streamlined its corporate structure about a decade ago. If you ask top executives, and members of the Cargill and MacMillan families that control the company, about the key to Cargill’s success, they’ll answer with two words: private ownership.
Private owners don’t have to bow to the short-term goals markets impose on publicly-traded companies. That allows Cargill to fly under the radar. There’s another advantage to rolling that way: When your profits depend on market volatility triggered by a war, it comes in handy to be shy and avoid political scrutiny.
For now, at least, the Cargills and MacMillans haven’t followed in the footsteps of rival grain trader Bunge, which went public in New York in 2001, and Glencore, which sold shares a decade later in London. But Cargill’s ownership is getting increasingly diluted among each new generation of family leadership at the company and the pressure must be building to cash in.
After all, commodities trading is highly cyclical, and Cargill has struggled to adapt to changing business circumstances in the past. Net income steadily increased from 2000 onward due to the Chinese commodity boom, but Cargill’s earnings plunged following the global financial crisis. The 2011-2015 period was difficult, and included quarterly losses. Times are very good now. So maybe Cargill should go public?
Chief Executive Officer David MacLennan, who has run Cargill since 2013, has repeatedly ruled out an initial public offering. If history is any guide, he will probably retire in the next year or two, after turning 65. Whether the next CEO, the tenth in the company’s history, would keep the company private is far less clear. The key is whether Cargill can sustain record profits while maintaining handsome dividend payments to its 150-plus family shareholders. In its fiscal 2022 year, it paid shareholders a record-high distribution of $1.21 billion. Still, Cargill is a relatively frugal company by Wall Street standards when it comes to dividends. Cargill also says it reinvests an average of 80% of its operating cash flow back into its business.
How best to handle its newly minted riches may not be Cargill’s most immediate problem, anyhow. Politicians have been asking tough questions of companies that have profited handsomely during a chaotic and troubling time, and they may soon come knocking on Cargill’s door. And a company that prefers to remain in the shadows may have to answer publicly about how it harvested a fortune.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
More Global Markets Topics >
