Although the recipe for raising this kind of money is simple, it also takes courage. Commodity markets have been extremely volatile lately. The supply chain chaos unleashed by Covid-19, followed by the Russian invasion of Ukraine, has triggered historic price swings – and an opportunity to make eye-watering profits in the wheat-to-oil markets. Big energy companies are already the target of some US and European lawmakers who have accused the giants of profiting from political and social unrest. Commodity traders such as Cargill, with historic profits, are likely to become political targets as well.
Cargill, controlled by two billionaire families tied in marriage decades ago, is one of America’s most lucrative corporate ATMs. As a private company, Cargill does not disclose its accounts publicly and has quietly increased its profits nearly 20-fold over the past two decades, according to financial statements I reviewed. The company declined to comment for this column.
With some 155,000 employees in 70 countries, Cargill is the “C” in the famous “ABCD” of the agriculture industry. Other members of this legendary club are Archer-Daniels-Midland Co., Bunge Ltd. and Louis Dreyfus Co.—and they have together dominated the grain trade for more than a century.
If Cargill were a publicly traded company, it would be among the largest in America. Archer-Daniels-Midland is publicly traded and currently has a price/earnings multiple of 13.29. Using the same metric, Cargill would be valued at around $90 billion, giving it a market cap on par with Goldman Sachs Inc., and ahead of Citigroup Inc. and BlackRock Inc.
What is behind this success? The wild moves in the market over the past two years have surely helped. Cargill also successfully overhauled and streamlined its corporate structure about a decade ago. If you ask senior executives and members of the Cargill and MacMillan families who control the company about the key to Cargill’s success, they will answer you with two words: private ownership.
Private owners do not have to bend to the short-term goals that the markets impose on listed companies. This allows Cargill to fly under the radar. There’s another benefit to rolling this way: when your profits depend on war-triggered market volatility, it pays to be timid and avoid political scrutiny.
So far, 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 ownership is increasingly diluted among each new generation of family leaders in the business and the pressure must increase to cash in.
After all, commodity trading is highly cyclical and Cargill has struggled to adapt to changing business circumstances in the past. Net profit rose steadily from 2000 due to China’s commodities boom, but Cargill’s profits plunged following the global financial crisis. The 2011-2015 period was difficult and marked by quarterly losses. Times are very good now. So maybe Cargill should go public?
CEO David MacLennan, who has led Cargill since 2013, has repeatedly ruled out an initial public offering. If history is any guide, he will probably retire in a year or two, after turning 65. Whether the next CEO, the tenth in the company’s history, would keep the company private is much less clear. The key is whether Cargill can sustain record profits while maintaining handsome dividend payments to its more than 150 family shareholders. In its 2022 fiscal year, it paid its shareholders a record distribution of $1.21 billion. Still, Cargill is a relatively frugal company by Wall Street dividend standards. Cargill also says it reinvests an average of 80% of its operating cash flow back into its business.
Either way, how best to manage its newly created wealth may not be Cargill’s most immediate problem. Politicians have been asking tough questions of companies that have largely profited during a chaotic and troubling time, and they may soon be knocking on Cargill’s door. And a company that prefers to stay in the shadows may have to answer publicly for how it made a fortune.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former Bloomberg News reporter and commodities editor at the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”
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