Milling & Baking News - March 30, 2004 - 7

E D I T O R I A L

Corn's inﬂuence intensiﬁes as use grows

henever experts gather to discuss prospects
for wheat prices, it's fairly certain that the
deliberations will turn to examining the inﬂuence of corn. That was the case when wheat was regarded as solely a food grain, primarily for milling into ﬂour,
and corn was viewed as an animal feed. In recent weeks,
the inﬂuence of corn on wheat as well as the reality of
corn standing as a signiﬁcant force by itself in affecting
the cost of ingredients have intensiﬁed. This perception
of corn having a greater impact than might previously
been thought partly reﬂects the relatively greater price
strength in the yellow grain. It also stems from how
corn's role in the national and international economies
has changed radically, while wheat has had to ﬁght to
maintain its historical position.
The analogy may not be exact but in looking at recent
trends in wheat and corn, it's fascinating how unexpected forces play powerful roles. For instance, in weighing
domestic demand for wheat, consumption has been
impacted by growing concern about obesity among
Americans and the role that some diet faddists have
unfairly assigned to carbohydrates. Contrast that with
the corn market where attention for some months now
has concentrated on animal and poultry diseases, most
recently avian inﬂuenza in Asia and prior to that bovine
spongiform encephalopathy, or mad cow disease, found
in a cow in the state of Washington. Called A.I. and
B.S.E., control of these diseases depends on killing the
infected chickens or animals, The chicken ﬂu outbreak
in Asia has already prompted mass slaughter of ﬂocks to
the point that demand for corn for feed in these import
markets may be negatively impacted.
While this latest "surprise" brieﬂy hit corn, prices
have continued upward. The fact that the United States
in 2003 produced the largest corn crop in its history,
exceeding the 10-billion-bushel mark by more than 100
million bushels, is outweighed by surging domestic and

global demand. Corn is propelled on its upward course
by the Department of Agriculture reducing its estimate
of production by 164 million bushels and at the same
time increasing its forecast of use by 155 million. Seldom
has a combination of estimate revisions exerted a more
explosive force than that one did, especially since both
were unexpected by the trade.
The increase in corn disappearance occurred across
the full range of uses - domestic feed, exports and what
the Department calls "FSI," symbolizing food, seed and
industrial uses. Once hardly a signiﬁcant part of annual
corn disappearance, "FSI," driven by expanding grind
of corn to make ethanol and sweeteners, has grown to
the total of 2,480 million bushels forecast for the current
crop year. That is up 27 per cent in three crop years. A
little less than half of that total is feedstock for ethanol,
with corn reﬁning for high fructose corn syrup accounting for a major part of the remainder. Ethanol production, which is spurred by states switching from methyl
tertiary butyl ether (MTBE) as a gasoline additive, set a
record of 2.81 billion gallons in 2003, up a third from the
prior year and 90 per cent more than produced in 1999.
When one considers that "FSI" corn use just recently
passed annual disappearance of wheat, both domestically
and for export, which is forecast at 2,344 million bushels in
2003-04, the magnitude of corn as a force within the grain
economy emerges in starkest terms. The amazing point
with corn is that both its uses as a feedstock for fuel and for
reﬁning into starch for sweeteners are relatively new applications, brought about by an industry focus on technology
and market development, and, yes, by political persuasion. Once representing a revolution mainly conﬁned to
the economy of this single grain, these developments have
spread with striking impact into wheat and other aspects
of grain-based foods. What happens in corn literally affects
every aspect of an industry that might once have not paid
all that much attention.

Watching how Cargill fares in public arena

ather than viewing the merger recently announced
of IMC Global Inc. and Cargill Crop Nutrition, the
fertilizer business of Cargill, Incorporated, as a "toe
in the water" to test a public offering for the privatelyowned Cargill, it seems much more reasonable to take
this action at face value. True, there's hardly a subject in
agribusiness more prone to speculation than the possibility
of Cargill, the world's largest privately-owned company,
going public. With its leading positions in many parts of
grain-based foods, especially milling, corn reﬁning, sugar
and cocoa and vegetable oils, actions by this enterprise
in any area cannot help but create great interest as well
as conversation. Yet, the merger forming this new public
company in fertilizer makes such great sense on its own
that observers probably will gain most by observing how
this operation is structured and managed and how it fares
in the public domain.
To be selﬁsh about it, ﬂour millers have a reason for
pride in that the new company, yet unnamed, will be
headed by Fritz Corrigan, an executive who won his initial reputation at Cargill in ﬂour milling. Mr. Corrigan,
whose father of the same name also had a distinguished
career in grain and milling, is leaving the executive
vice-presidency of Cargill to become chief executive
of the new company. He has headed Cargill's fertilizer
bakingbusiness.com/world-grain.com

operation since he left milling many years ago. He has
acknowledged to all who ask that these two industries,
albeit very different, have a commonality of being extremely tough places to work.
It may be surmised that Cargill saw an opportunity to
acquire IMC Global in the wake of that company's ﬁve
successive years of losses. IMC has a market capitalization
of about $1.3 billion, and its revenues are near $2 billion,
which is matched by Cargill's, giving the new company
sales of $4.1 billion. Cargill's contribution to EBITDA will
be the lion's share of an expected $440 million. IMC's debt
of $2.2 billion will be assumed by the new company. Pretax operating synergies of about $145 million are forecast
by the end of the third year of operations.
The mining and production facilities that will combine to create "a more efﬁcient, full-service global
fertilizer company," along with a greatly strengthened
balance sheet and expanded ﬁnancial ﬂexibility, are
reasons enough for this transaction. Yes, it is true that
this step gives Cargill access to public markets unlike
those it has as a private enterprise. It will be fascinating
to watch how Cargill performs with a business so central
to global growth in food production. This world-leading
stake in fertilizer production and marketing is in reality
an expanded commitment to the world of grain. MBN
Milling & Baking News, March 30, 2004 / 7

http://www.bakingbusiness.com/world-grain.com

Milling & Baking News - March 30, 2004

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