Archer-Daniels-Midland Company

4666 Fories Parkway
P.O. Box 1470
Decatur, Illinois 62525
U.S.A.
(217) 424–5200

Public Company
Incorporated: May 2, 1923
Employees: 10,386
Sales: $5.5 billion
Market Value: $3.3 billion
Stock Index: New York

Archer-Daniels-Midland is a successful company with a quiet and conservative profile. It specializes in purchasing, transporting, storing, processing and merchandising agricultural commodities. The company’s attitude is direct and optimistic: “Food is a growth business. Globally there are 85 million more mouths to feed each year; the equivalent of the current population of Mexico, or more than one-third of the U.S. population. ADM plans to participate in this growth.”

Archer-Daniels-Midland has always been clearly focused, and has no intentions to diversify outside of the foods related business. Since its early years the company’s methods have been consistent—strong research and development which emphasizes new production methods and uses for agricultural products, coupled with a bottom-line mandate for high performance and cost efficiency.

John W. Daniels began crushing flaxseed in Ohio in 1878, and in 1902 he moved to Minneapolis, Minnesota to organize the Daniels Linseed Company. The entire company consisted of one flax crushing plant which made three products, including raw linseed oil, boiled linseed oil, and linseed cake or meal. In 1903 George A. Archer joined the firm, and in a few years it became the Archer-Daniels Linseed Company. Archer also brought experience to the firm because his family had been in the business of crushing flaxseed since the 1830’s. Archer and Daniels then hired a young bookkeeper by the name of Samuel Mairs. Mairs would later become the chairman of the board when the business was much larger and significantly more affluent.

These three men had a common goal of “year round production at low margins,” a goal which directs the company today. Archer and Daniels used hydraulic presses to process flaxseed, and their linseed oil was essentially the same as that used by the ancient Egyptians. In the early years profits were low, but Archer-Daniels Linseed never finished a year in debt. They also grew slowly, buying the stock of the Toledo Seed & Oil Company, and the Dellwood Elevator Company, a grain elevator firm.

The year 1923 was a turning point because the company purchased the Midland Linseed Products Company and then incorporated as the Archer-Daniels-Midland Company. However, other equally significant changes occurred during the 1920’s which were important to the company’s future. Archer, Daniels and Mairs began the scientific exploration of ways to alter the chemical structure of linseed oil. This project initiated the company’s successful research and development program. Research and development allocations were not commonplace for companies at that time, and the market was startled by the company’s slogan: “Creating New Values From America’s Harvests.”

Throughout the 1920’s the company made steady purchases of oil processing companies in the midwest. At the same time, it was also engaged in other agriculturally related activities. It built elevators on Minneapolis loading docks to store grain until it was shipped down the Mississippi to other ports. Then, in 1930, Archer-Daniels-Midland purchased the Commander-Larabee Company, a major flour miller with plants in Minnesota, Kansas, and Missouri. Commander-Larabee was capable of producing 32,000 barrels per day. (Today Archer-Daniels-Midland can produce 165,000 hundredweights of flour per day.) Purchase of Commander-Larabee had two additional advantages; it allowed ADM to coordinate its oil byproduct business with Commander-Larabee’s feed-stuff by-product business, and the mutual sales effort lowered overhead. During this time, the company also discovered how to extract lecithin from soybean oil, reducing the price of lecithin from ten dollars to one dollar per pound. (Lecithin is widely used as an emulsifier in the food and confectionery industries.) As a result of Archer-Daniels-Midland’s growth maneuvers and research, the company had $22.5 million in assets by 1938.

As a linseed oil manufacturer, Archer-Daniels-Midland interacted with more than just the food market. The paint product industry used drying oils in the manufacture of various products, and the three major oils used were linseed, tung and perilla. These oils added critical gloss and hardness properties to paint finishes. The demand for drying oil in the paint industry fluctuated widely because it depended heavily on construction. Demand for domestic drying oil was also affected by the availability and price of foreign oils. (Most oils were imported from the Far East and South America.) Added to these two variables was the quality and size of each year’s harvest. Even during the Depression and coping with all these variations in a struggling economy, the company made a profit. This was because Archer-Daniels-Midland had been working on ways to adapt oils to sell to new markets, including soaps, drugs, brake fluids, lubricants, petroleum and chemicals.

Since Archer-Daniels-Midland knew the value of its research department, it appropriated 70% of its earnings (one to two million dollars annually) back into the business for development and expansion. One result was a process whereby the usable fibres (the tow) of flax straw (a waste product up to then) could be used in the manufacture of flax papers. World War II made it impossible to increase the company’s facilities as much as it wished; nevertheless, the company’s capacities still grew significantly from 1930 to 1945. From a 1929 processing capacity of 20 million bushels of flaxseed per day, the company could process 36.6 million bushels per day by 1945. Wheat flour capacity went from zero to 30 million bushels per day. Grain storage capacity increased from 7.5 million to 50.4 million bushels per day.

The immediate post-World War II years from 1946 through 1949 showed dramatic growth; sales increased 287%, and net income increased 346%. In 1949 sales were $277 million, with a $12 million net profit. Archer-Daniels-Midland was well positioned in several market areas because it supplied basic ingredients to a wide range of industries. The company was the United States’ leading processor of linseed oil, the fourth largest flour miller, and it had become the largest soybean processor. It also served the paint, leather, printing, gasoline, paper, cosmetics, pharmaceuticals, rubber, ceramics, munitions and insecticides industries.

The conservative management style had consistently safeguarded the company’s success. For instance, whenever possible Archer-Daniels-Midland hedged its purchases of raw products by sales in the futures markets or by forward sales of the completed products. By the end of fiscal year 1949, the company had no bank debt, and it had paid a dividend every year from 1927 onward. All plants were kept at a high state of operating efficiency, using modern, streamlined methods. There had also been a change in the processing level. The company began to put its product through advanced physical processing instead of selling them in a raw or semi-finished state. This increased profit margins. Overall, management estimated that 40% of its increase in sales from 1939 to 1949 was due to new products and methods developed within the company.

Due to the fact that the company supplied core oils used in foundry industries, the outbreak of the Korean War increased demands on production through the early 1950’s. The company was also increasing its outlay for whale oil procurement, which it had begun in the 1930’s. And it was increasing its production of protein concentrates and marketing them extensively for stock-feeding purposes.

When company president Thomas L. Daniels (son of the founder) and chairman of the board Samuel Mairs celebrated Archer-Daniels-Midland’s 50th anniversary in 1952, the company was manufacturing over 700 standard products and had extended its operations overseas. More foreign expansion followed in Peru, Mexico, the Netherlands and Belgium. In these ventures, the company specialized in partnerships with local interests. President Daniels expressed the company’s attitude toward foreign involvement in the late 1950’s when he said,“ADM looks with particular favor on Western Europe as an area of great chemical producers. ... All industry there is expanding rapidly, both for local consumption and for export to other parts of the world.”

Archer-Daniels-Midland had weathered the Depression and World War II, but ran into trouble during the 1960’s. Although it made several grain production and storage purchases in the early 1960’s, unstable commodities prices and the company’s chemicals operations were causing losses. Net earnings were $75 million in 1963, and then declined to about $60 million in 1964, and then declined even further to $50 million in 1965. By 1965 the company could not cover its dividend. At this time John Daniels, president and grandson of one of the founders, and Shreve M. Archer, Jr., one of the directors, asked a new man to join their leadership team with the purchase of a block of the Archer family stock. His name was Dwayne O. Andreas, and he effectively took control and revolutionized Archer-Daniels-Midland.

Andreas’ low profile appealed to the company management, and so did his background. He came from a long-term farm products background, first with his father, and then on his own. One of the first things Andreas did was eliminate a 27 person public relations department. By his own admission, he “almost never talks to analysts or reporters.” He is not a stereotyped executive, however, having contributed to both Martin Luther King’s Southern Christian Leadership Conference as well as Richard Nixon’s presidential campaign. He has also advocated increases in the corporate income tax rate.

Andreas thought that one specific product could do a great deal to turn the company around, namely soybeans. Andreas recalled, “I knew that ADM was a dozen years ahead of everyone else in textured vegetable protein research, and I believed that was where important action was going to be.” Whereas scientists advocated an almost pure protein product derived from the soybean, Andreas encouraged the development of textured vegetable protein, a 50% protein soy product which is far more economical to produce. His increasing power in the company (by 1968 he was chairman of the executive committee) made his plans a reality. Andreas described his actions by saying, “One of the first things I did was to take the edible soy out of the lab and construct a plant in Decatur (Illinois) to make all the grades of edible soy protein in 1969.” He expected to exceed the plant’s capacity by 1976. However, by 1973, with doubled production, the plant was already short of demand. Textured vegetable protein (TVP) was widely used in foodstuffs. And soybean oil is the number one food and cooking oil in use today.

The company also sold its troublesome chemical properties to Ashland Oil & Refining Company for $35 million in 1967. That same year it acquired the Fleischmann Malting Company, which would become a very profitable producer of malts for the food and beverage industry. Andreas proved expert at maintaining a good profit margin on soybeans too. Two or three cents shaved off costs made large differences in this slender-profit-margin item. In this area, Andreas’s management rules of efficiency and profitability echoed the founders’ practices.

With unprofitable operations sold, profitable ones newly acquired, and the increasing success of the soybean, the company entered another major area of operations. In 1971 it purchased Corn Sweetners, Inc., producer of high fructose syrups, glutens, oil and caramel color. Corn Sweetners resulted in good returns for Archer-Daniels-Midland and increased the company’s finished-food capabilities.

Throughout the 1970’s the company built textured vegetable protein plants in Europe and South America. In addition, Dwayne Andreas brought three other member of the Andreas family into Archer-Daniels-Midland as the company expanded. These three have become heads of various divisions, although the company still retains one Archer and one Daniels in high-ranking positions.

From the net low of $50 million in earnings in 1965, by 1973 net earnings were near $117 million. This increase paralleled the upward swing in U.S. soybean production and exports from 700 million bushels per day in 1965 to 1.3 billion in 1973.

That growth continued through the 1970’s and into the 1980’s. Archer-Daniels-Midland has several major subdivisions, the largest of which is the Oilseed Processing division. In this division, soy products long ago outstripped linseed and all others. The next largest, Corn Sweetners division, produces ethanol in addition to high-fructose products. In fact, the Decatur, Illinois plant is the single largest source of ethanol in the United States. Archer-Daniels-Midland Milling Company processes the company’s grains, and in 1986 the milling division became even larger when Archer-Daniels-Midland absorbed Growmark, a large midwestern grain merchandising and river terminal cooperative. The new wholly-owned subsidiary is called ADM/Growmark.

Another division, the Columbian Peanut Company acquired in 1981, produces oil and peanut products, and Archer-Daniels-Midland is the leading domestic peanut sheller. Gooch foods is the company’s market name for a line of pasta products, which have been in increasing demand since the advent of microwave pasta dishes. Other divisions of Archer-Daniels-Midland include Southern Cotton Oil Company, Fleischmann Malting Company, Inc., American River Transportation Company, Supreme Sugar Company, and the British Arkady Co., Ltd. (this last is a supplier of specialty products to the bakery industry).

The oilseed operations account for 45% of revenues, the corn operations 34%, the wheat and flour operations 12%, and all others 9%. Net earnings for 1986 were $240 million. Instead of being a low profile, moderately successful company, Archer-Daniels-Midland is presently a low profile, extremely successful company. It is one of the world’s largest agricultural processors and plans to remain exclusively in the food business, relying on its proven strategy of efficiency, research, and good margins.

Principal Subsidiaries

ADM Milling Co.; American River Transportation Co.; Gooch Foods, Inc.; Supreme Sugar Co., Inc.; Smoot Grain Co.; ADM Transportation Co.; Tabor Grain Co.; ADM Feed Corp.; Columbian Peanut Co.; ADM Grain Co.; Southern Cotton Oil Co.; ADM Investors Services, Inc.; ADM Leasco, Inc. The company also lists subsidiaries in the following countries: Cayman Islands, The Netherlands, United Kingdom, and West Germany.