Across the U.S. Farm Belt, the balance of power is swinging away from multibillion- dollar agribusinesses. For over a century, companies such as Cargill Inc. held sway over markets for U.S. corn, soybeans and wheat, quoting prices to farmers who trucked their crops to company grain elevators.
Cargill and its peers would then market crops to food and beverage makers across the country. Now farmers are increasingly calling the shots. Running expanded, consolidated farms, big farm operators are pushing grain giants for better prices or striking their own deals to directly supply manufacturers, cutting out the middleman.
On his farm near Tuscola, Ill., Austin Apgar, 36 years old, is preparing to send some of this fall's harvest to market. Earlier in his 14 years of farming, Mr. Apgar said he typically trucked his crop to one of the local grain elevators, where the employees may not have known his name.
Today, Cargill, facing challenges in its grain business, is working to keep him close. Two states away, Adam Hyer, a Cargill grain trader based in Ohio, is negotiating to purchase hundreds of thousands of bushels of corn from Mr. Apgar. As part of the deal, Cargill may provide semi trucks to haul it away at a discounted rate.
“I'm making deals with them I was never able to make in the past, because of my [farm's] size,” Mr. Apgar said. He estimated his negotiations with Mr. Hyer, who sometimes visits for dinner, have added anywhere from a nickel to a dime per bushel to his corn sales — serious money in a downtrodden agricultural economy.
The changing dynamic between agricultural companies and their farmer suppliers is forcing a shift in strategy among U.S. grain giants. Cargill — which generates $115 billion in annual revenue — and its rivals are pushing efficiency at grain facilities, developing new technology for crop-planning and providing more personal attention to increasingly sophisticated operators of larger farms.
On any given day, Cargill's global network may handle up to 20% of the world's food supply, company officials estimate. Crops like corn, soybeans, wheat and canola remain the fuel for much of the empire.
“It's the root of the Cargill company,” said Marcel Smits, Cargill's chief financial officer. Still, he said, “it's clear that everybody in the industry has had a difficult time over the past few years.”
Among the shifts: low crop prices, farmers with more capacity to store their grain and competition for crops from livestock operations and ethanol plants. Venture capital backed startups are developing services that scan a wider range of grain buyers or connect farmers directly with food makers.
From 2012 to 2017, Archer Daniels Midland Co.'s profits in its grain merchandising and handling division fell 39%. Profits from Bunge Ltd.'s similar agribusiness division dropped 76%. Cargill's annual profits fell three out of those years, and the company has pointed to struggles in its own grain business as a factor.
Bunge Chief Executive Soren Schroder said farmers' stronger negotiating position, which also extends to South American farms, has been a “wake-up call.” On a conference call with analysts earlier this year, he said “I think the entire industry and certainly ourselves are trying to adjust to a new environment.”
Wes Uhlmeyer, head of Archer Daniels Midland's grain business, said as farmers get bigger, “they're becoming more savvy businessmen.” He said ADM is developing mobile applications for farmers and streamlining its operations to keep grain flowing in.
Founded with the 1865 purchase of an Iowa grain warehouse, Cargill's business has sprawled into meat processing, animal feed, food ingredients and financial services.
The practice of buying crops didn't change much for Cargill for about a century. At harvest, farmers trucked the bulk of their harvest to the local elevator offering the best price.
With so much grain coming to market at the same time each year, Cargill and its rivals could count on scooping up large volumes of farm commodities at bargain prices. The companies made money storing the crops and later selling and shipping them to food companies and governments.
Things changed about a decade ago. The global commodity market boom and patches of bad weather from 2007 to 2012 propelled some crop prices to record highs. Many farmers plowed the proceeds into market- tracking technology, gargantuan steel bins to bank more crops and trucks to move them.
Over the past decade, U.S. farms' crop-storage capacity expanded by 14% to 13.5 billion bushels — enough to hold nearly all of 2017's corn harvest.
Farmers, now slogging through a five-year period of low commodity prices, say this gives them greater leverage. Because they can store more grain and wait for prices to rise, farmers wield “significantly more power in the supply chain,” said JPMorgan analyst Ann Duignan.
On eastern Colorado's plains, Scott Mathias saw the shift from a small grain elevator owned by Cargill. The facility's silver storage towers long stood among Cargill's farm country outposts, where the company buys corn, wheat and sorghum from local farmers. As a farm marketer for Cargill, Mr. Mathias worked out purchase deals with farmers, funneling their crops to Cargill's grain bins and cattle feedlots.
'The goal would be to continue to grow the business with these farmers.'
The farmers Mr. Mathias dealt with, however, became tougher negotiators, he said, as they expanded their acres and piped market and weather data to their mobile phones. He said he found it increasingly hard to match offers farmers negotiated with other grain companies and feedlots.
Mr. Mathias said his job got harder still after Cargill in 2016 sold the Burlington, Colo., grain elevator — and later, nearby cattle feedlots that were reliable destinations for the grain grown by many of Mr. Mathias's farmer contacts. The challenges reflected the new Farm Belt dynamic: Even the biggest agricultural company in the U.S. can't count on keeping farmers' business as they grow larger and more sophisticated.
“You can have the best relationship in the world,” said Mr. Mathias, who left Cargill in 2017 after four years. “But if someone has a better price, you can't blame them” for taking it. Mr. Mathias now works for Indigo Ag, a four-year-old Boston company recruiting farmers to raise premium-priced crops like organic corn under contracts to directly supply food companies.
The changes are fueled by a demographic shift that is reshaping rural America. As U.S. farmers' average age climbs above 58, more are retiring, creating opportunities for bigger, wealthier and higher-tech farm operations to grab more acres.
Farms generating $1 million or more in annual revenue represent just 4% of the U.S. total, but now produce two-thirds of the country's agricultural commodities, according to the U.S. Department of Agriculture.
For grain companies, farmers like Mr. Apgar in Illinois represent the future. In addition to his 9,000-acre farm, he owns another 5,000 acres of farmland that he rents out to other farmers. He buys and stores diesel fuel and farm supplies in bulk, receives alerts on futures prices and interest rates on his phone, and watches via iPad as his employees pilot his hulking John Deere combines across the fields at harvest.
Generally, Cargill has tended to assign grain buyers to deal with hundreds of farmers each across the Midwest. Contacts were sometimes limited. Over the past two years, the company has taken a new approach, dedicating a handful of employees such as Mr. Hyer, who joined Cargill in 2012 after graduating from college, to work directly with a smaller number of larger farmers like Mr. Apgar.
They are in close contact. Mr. Hyer trades text messages, emails and phone calls with Mr. Apgar and around two dozen other farmers. They may discuss forces pulling grain futures markets up or down, and Mr. Apgar will relay the condition of his fields and how many bushels he expects to reap in the fall. Together they project his profits, and discuss how much grain Mr. Apgar might sell to Cargill, and at what price. From time to time, Mr. Hyer visits Mr. Apgar in person to talk farming on the porch, and share a meal cooked by Mr. Apgar's mother.
“The goal would be to continue to grow the business with these farmers,” Mr. Hyer said. “I want them to see me as a member of their board.”
Roger Watchorn, head of Cargill's North American agricultural supply chain, estimated the company has shrunk its network of U.S. grain facilities from 120 to about 85 over the past four years, divesting itself of some far-flung grain elevators that aren't near a railroad or river. Overall, Cargill still is trafficking in the same amount of grain, directing more volume toward its remaining, higher-capacity facilities, said Mr. Watchorn.
Cargill is pushing to make those facilities more efficient. At the company's grain elevator near Linden, Ind., sensors identify each corn- and soybeanladen truck as it rolls in, logging the trucks into Cargill's computer system. Justin Monger, the facility's manager, said the system can get trucks in and out in as little as six minutes, and is one-third more efficient than grain elevators that rely on employees to weigh trucks and log deliveries. Mr. Monger said the grain business needs to keep up with farmers. “If [their trucks] are sitting still, we're the worst place in town,” he said.
A deeper technology effort is advancing inside Cargill's corporate campus west of Minneapolis, where Justin Kershaw, the company's chief information officer, is overseeing a multimillion-dollar investment in data science. The company is hiring technicians and building a “digital labs” unit that can knit together satellite imagery, weather-sensor data and artificial intelligence to get an early read on creeping droughts and places where foodstuffs may run short, he said.
Cargill expects the data crunching unit to show how the company can run its own trading and logistics operations more profitably, Mr. Kershaw said. But Cargill also will use it to develop crop-planning and futures-market services for farmers.
There are signs Cargill's new approach is paying off. In July, the company said its grain origination and processing division delivered its most profitable fiscal fourth quarter in seven years, as a drought in Argentina lifted crop prices and its technology investments bring “greater insight” to farmers and other customers.
A skeptical farmer
Ryan Christopherson, who farms about 5,000 acres near Clarkfield, Minn., is skeptical about grain companies' plans to work more closely with farmers. He said the global nature of big agriculture companies means they won't always prioritize U.S. farmers' best interests.
“They're taking that money and investing it in South America,” which has become U.S. farmers' fiercest competitor in global crop exports, Mr. Christopherson said. Grain company executives say U.S. farmers and agricultural exporters will play a critical role fulfilling growing global demand for crops to make food and feed livestock.
“The world's going to call on the U.S. to be a huge exporter,” said Cargill's Mr. Watchorn. Both Cargill and ADM own grain facilities near Mr. Christopherson's farm, and he still sells crops to them. He says he's making them work harder for it though.
This year he is experimenting with a service from Farmers Business Network, a four-year-old startup that lets farmers compare grain prices across more than 4,000 U.S. elevators, ethanol plants and feedlots, while projecting per bushel profits for the farmer. The service can also arrange bulk sales from farmers directly to food processors.
“It could be one more of the thousand ways of nibbling around the edge of the piece of paper to increase our income,” Mr. Christopherson said.
Last year, Mr. Apgar teamed with another local farm family to buy one of Cargill's aging grain storage facilities, located about 7 miles northwest of his farm. Mr. Apgar says its 150- foot cylinders let them bank another 750,000 bushels of grain and make bulk deals with grain companies.
“I have companies coming to me, that represent buyers of grain, who want to deal directly with the farmer,” Mr. Apgar said. “I can put it on a train and send it to [them] in a week. That's a threat to the bigger guys.”
A series of record-breaking harvests have kept corn prices low for years, encouraging farmers to store crops and push grain companies for better prices.
BY JACOB BUNGE