pjbooks Chapter 365 Expedited Investment in Cargill: The First Clash
Chapter 365 Expedited Investment in Cargill: The First Clash
Chapter 365 Expedited Investment in Cargill: The First Clash
In 1865, a 21-year-old lumber merchant named William Cargill used his savings of $1200 to buy a grain lift in Connover, Iowa, and built his own simple barn.
He had never been to college and didn't believe in the futures market, those fancy numbers games.
He believed only one thing: food is sustenance, not a gamble. People would die if they didn't have enough to eat.
He recognized the wave of agricultural expansion in the Midwest and used the railway network and Mississippi River shipping to solve the problem of grain storage for farmers.
Farmers deposited grain into granaries to pay rent, while Cargill graded and priced the grain, stored it in different warehouses, and then resold it to flour mills in the east to profit from the price difference.
He doesn't rely on middlemen or leverage. He builds trust with farmers little by little through a fixed price and his persuasive communication.
Fifteen years later, his Cargill Grain Company controlled more than 200 rural purchasing stations in Minnesota and the Dakotas, and owned a large warehouse complex at Chicago’s South Wharf, with an annual trading volume of more than 2 million bushels.
By 1888, Cargill's grain trade accounted for 15% of the Midwestern grain market. Cargill's capital reached $140 million, and its annual profit reached $37.
At the time, this was already considered a truly large grain company.
It should be said that William Cargill's rise to prominence was due to a favorable economic climate. In the 1880s, European industrialization was in full swing. Demand for American wheat from Germany and Britain was extremely high, causing American wheat prices to repeatedly reach new highs.
However, the expansion was too rapid, and the seeds of future problems had already been sown.
The company relied heavily on borrowing for expansion, building new grain warehouses and purchasing stations, with its debt ratio reaching as high as 70% at one point. Because the founder disliked speculation, the company never participated in futures hedging, relying entirely on experience to predict grain price trends. By 1890, due to the tariff war waged by the United States, European countries retaliated in kind, making American grain less cost-effective in Europe.
In addition, as Tsarist Russia began mechanized reclamation of land along the Black Sea coast, Europe's grain reserves began to recover, and global grain prices fell in tandem.
To make matters worse, William Cargill misjudged the situation and bet on rising wheat prices, stockpiling 200,000 tons, only to be met with a global bumper harvest that caused prices to plummet by 40%.
By the end of 1891, the company was on the verge of bankruptcy with debts of $260 million. William Cargill had no choice but to urgently bring in his son-in-law, John McMillan, to join the company and raise funds to save itself, which resulted in the death sentence being suspended.
However, this year, a large number of grain ships from the Black Sea have entered European ports, causing European buyers to turn to other markets.
Cargill's backlog of export orders was instantly cancelled, and the $30 advance payment turned into penalties, but it was far from enough to support the warehouses that were now bursting at the seams.
Meanwhile, westward expansion in the United States was largely complete. Newly reclaimed farmland in Dakta and Minnesota yielded high harvests year after year, leading to a domestic food surplus and continued downward pressure on spot prices.
To make matters worse, Cargill had previously provided a grain loan to a local brokerage firm to finance its cash flow problems. If Cargill is unable to repay the loan next month, the brokerage firm can apply to the court to seize Cargill's grain depot in Chicago.
Dunbar's latest intelligence is that Cargill's total debt is approaching $90, far exceeding its collateral. Right now, the bank is demanding $20 in payments within ten days. Meanwhile, Dakota farmers are blocking the warehouse entrance, demanding $15.
The grain purchase payment was tens of thousands of US dollars.
Compared to last year's predicament, Cargill is now facing much greater difficulties, and these are matters of life and death.
"He could manage to save himself when he was $260 million in debt before, so why couldn't he cope with $90 in debt this year?"
Larry asked, holding the intelligence.
Dunbar replied, "The reason is that the banks are withdrawing their loans! Last year's $260 million was a long-term debt. Cargill mortgaged all its assets and used up all its credit lines while its balance sheet still looked good."
However, the bank only provided Cargill with a short-term loan this time, and a batch of short-term loans will mature in November of this year. If they can't come up with the money this year, they really will have to go bankrupt and have their property auctioned off.
Larry nodded.
This was no surprise; Cargill's precarious debt situation was no secret. Chicago brokers and local grain traders knew it. Larry heard it from them during his last trip to Boston.
Little did we expect that Cargill had reached such a critical situation.
"Didn't Cargill try to save himself?"
Dunbar shook his head slightly. "There's another special situation this year: bank interest rates are too high. Their creditworthiness isn't good to begin with, so banks can't lend them money, but private lending rates exceed 60%. And they have to pay interest upfront—"
Larry nodded, understanding the crux of the problem.
If Cargill collapses and goes into bankruptcy liquidation, its grain warehouses, fleet, and land will be sold off cheaply in the current panicked market.
Chicago's rivals would love for Cargill to go bankrupt.
If bankruptcy does occur, considering asset depreciation and liquidation costs, the final recoverable value may be less than half of the book value, or even result in insolvency.
In other words, Cargill's actual value may now be close to zero, or even a negative asset, in the eyes of the market.
This is the time when Cargill needs "angel investors" the most! Because if someone invests now, they are buying Cargill's right to survive.
However, $90 is more than all of Cargill's current liquid assets can cover. The problem is, Cargill wants more than just $90.
The $90 is just a debt; if the company wants to continue operating, it will definitely need more money.
This makes the situation much more complicated.
Cargill's acquisition of Bausch & Lomb cannot be replicated using the same strategy. Bausch & Lomb makes lenses, which would be considered a "high-tech company" today, hence Morgan's interest.
But bankers have absolutely no interest in Cargill, one of the most common agricultural companies in the United States.
If he hadn't known that Cargill would one day become world-renowned and one of the top four international grain traders, he wouldn't have been interested in an agricultural company that stockpiled grain.
So the problem now is money—I still lack funds to invest in Cargill!
Larry thought for a moment, still clueless, then asked, "By the way, Uncle Dunbar, why did you just say they wanted to invest $50?"
"Because William Cargill is going to compromise—" Dunbar's face showed a helpless smile, as if he felt helpless for him. "At his son-in-law's suggestion, Mr. Cargill is preparing to register all his wheat inventory as warehouse receipts to participate in futures delivery. Now they have no working capital, and McMillan recently borrowed money from other brokers and grain traders in Chicago. Their condition is—25% equity in exchange for $50. As long as they sell their wheat inventory to delivery warehouses, they can make up the $90 shortfall—"
Larry frowned as he listened to Dunbar's explanation, then scoffed and remarked, "Dream on!"
They're only willing to give up 25% of the shares now; it seems William Cargill and his son-in-law are still hoping for the best!
but----
Larry frowned. He felt the problem wasn't the 25% stake at all, but rather how much of Cargill's wheat inventory would actually be converted into futures contracts.
It's important to understand that if the Chicago Mercantile Exchange truly had such a large number of deliverable warehouse receipts, then according to supply and demand, an increase in supply would inevitably lead to a price decrease.
US wheat prices were already in a downward trend, and this year's price rebound was mainly due to short-term factors. Once Cargill's warehouse receipts appear, the reasons for the short-term rise will be offset by new circumstances, and wheat prices will collapse!
Wait a minute—that's how it is—
Will Cargill's wheat stocks become a key factor influencing short-term market fluctuations?
Larry's body stiffened, and he quickly turned to Dunbar, urgently ordering, "Dunbar—Uncle, you need to do me a favor. Check how much of Cargill's inventory meets the delivery standards—"
$50! Yes, investigate based on that liquidity! Get those two Italian lads to cooperate. We must find out the truth. Two days, no! One day, I need to know the real story!
As he spoke, Larry hurriedly stood up, buttoning his shirt and quickly pulling the brass bell, telling the approaching waiter, "Prepare a carriage for me; I need to go to the Chicago Mercantile Exchange!"
Dunbar asked, somewhat puzzled, "Where are you rushing off to? The Stock Exchange? Are you going there to see Matthew?"
"We're going to the stock exchange, but not to see Matthew—"
Larry pulled his hat up over his head, forced a smile, and said, "I'm going to the exchange to study the relevant regulations, especially those concerning wheat delivery standards—I need to be familiar with the rules to trade well!"
After saying that, Larry again urged Dunbar to quickly finalize Cargill's inventory intelligence, and then hurriedly went downstairs. For the next day or two, Larry's business intelligence team was extremely busy. At this point, much of the data wasn't confidential; it simply didn't exist, and they had to pay people to compile it on-site.
In addition, it would take time to get in touch with Cargill's internal staff. Ultimately, the one-day deadline was extended to two days.
Larry also had two busy days, spending each day in the legal department of the Chicago Mercantile Exchange, frantically studying the futures delivery system with a dictionary in hand.
You can't do without a dictionary. Futures contracts are full of technical terms, and even scholars who graduated from the University of Chicago can easily fall into traps because they can't understand the contracts.
In addition, Larry hired a lawyer so he could immediately ask him any questions he encountered while researching the system.
The third day, May 3rd.
With a confident smile on his face, Larry Livingston knocked on the door of Cargill's South Wharf in Chicago.
"I'm looking for a manager at Cargill, and they don't necessarily have to be named Cargill. I've heard that William Cargill's son-in-law, Mr. McMillan, is also involved in the company's operations!"
After Larry finished speaking, the Cargill employee who opened the door paused for a moment. After thinking for a few seconds, he said, "Mr. McMillan is here, but he's inspecting the grain silos. Please wait a moment under the awning!"
Larry nodded, then sat down in the shade and invited Matthew, who had come with him, to sit down and rest with Rattlesnake Cole.
Twenty minutes later, a tall man in his thirties wearing overalls hurriedly walked into the shade.
"Hello! My name is John McMillan. I'm in charge of Chicago's grain wholesale market. How can I help you?"
He's a straightforward man from central Taiwan, much easier to talk to than his father-in-law!
Larry quickly formed an initial assessment of him.
"Hello!" Larry shook his hand and said with a smile, "I'd like to order a batch of wheat from Cargill, but I'd like to get a fair price!"
Upon hearing that they were there to buy grain, McMillan's eyes lit up, and he quickly raised his hand and waved to Larry to let him in.
"Since you're a buyer, come in and let's talk! Rest assured, Cargill is the largest grain supplier in Minnesota and Chicago, and our prices are guaranteed to be the lowest in the industry."
Larry smiled without saying a word and followed McMillan into Cargill's office.
It's called an office, but it can't compare to the respectable offices in New York or even Boston. Because it's located right next to the dock warehouses, it's only slightly better than a typical residential house. But it still needs to function as an accounting office and a business meeting room.
"How's the coffee? Our coffee is the best!" McMillan asked with a smile, while instructing his assistant.
Larry and Matthew had barely sat down when their coffee was served.
McMillan waited until Larry took a sip of his coffee, and after a brief exchange of pleasantries and comments, he hurriedly asked, "Sir! How much wheat are you planning to buy? What grade?"
Larry, all smiles, placed his coffee cup on the table and held up five fingers to McMillan.
"5000 bushels?"
Larry shook his head.
"Are you a European guest? Then I'll use the metric system—you want five thousand tons of wheat?" McMillan asked again.
Larry shook his head again.
McMillan scratched his head and said with a smile, "Alright, sir. We're not going to play dumb anymore. Just name a number, as long as we can get it."
Larry smiled calmly and said, "Five million bushels of wheat!"
"Oh, it's 500 million—wait! How much did you say?!" McMillan suddenly jumped up from his chair, looking at Larry with a surprised expression, as if Lionheart had bumped into Saladin on a street corner.
"Five million bushels!" Larry nodded, his tone very firm.
McMillan's expression changed.
What does 5 million bushels of wheat mean?! It's equivalent to 136,000 tons in the metric system, enough to fill 80 trains or 20 of the largest grain transport ships.
McMillan didn't speak immediately. He carefully examined the unexpected visitor again, and after a moment, catching his breath, he said, "—Sir! We do have the number you mentioned! However, I must first ask, are you serious or joking?"
"Of course it's true!" Larry nodded at him.
“But that would require—let’s put it this way, the current exchange price for wheat is $1.12, and our current price is 95 cents. If you really want to buy such a large amount of grain, it would conservatively require $450 million—that’s no small sum!” McMillan said to Larry, carefully choosing his words.
Larry laughed, turned to look at him, and continued, "But I only have $50!"
"Huh?!" McMillan suddenly froze. He paused for a few seconds, not seeing any joking expression on Larry's face, before saying, "Your price is a bit ridiculous—it's impossible."
"Maybe!" Larry said with a laugh. "And it's not just food; I also want 25% of your Cargill company."
"You! You!" McMillan straightened up abruptly, his face flushed red. He pointed at Larry and roared angrily, "Hey! Kid. This isn't a place for you to cause trouble and extort money. Who do you think you are? Which gang are you from?"
"How dare you cause trouble here!"
As he spoke, McMillan suddenly grabbed a shotgun hanging on the office wall.
Matthew quickly adjusted his posture, his hands already inside the seams of his coat, but he didn't make any further moves.
Larry, however, calmly picked up his coffee cup, took another sip, and smiled. "Mr. John McMillan—"
Larry looked at him, waved for him to sit down, and then continued, "Whether Cargill can hold out until October 1st, I'm afraid neither you nor Mr. William Cargill can guarantee it, right? Rather than waiting to go bankrupt and be broken up and swallowed up, why not cooperate with me—what do you say?"
McMillan was taken aback by Larry. The young man, with his blond hair and blue eyes, was exceptionally young and handsome, yet his demeanor and speech were remarkably shrewd and experienced—McMillan had been secretly puzzled from the first moment he saw Larry.
Now, after Larry said that—especially since he pointed out the most terrifying thing, "Cargill might not make it past September"—McMillan felt a sense of terror as if he had been dragged to the ground.
Who is he? Why is he saying these things?
Furthermore, why 500 million bushels? This figure represents all the wheat stocks Cargill has stockpiled.
"Who...who are you? What's your purpose here?" McMillan asked in a hoarse voice.
Larry didn't speak, he just stared at the shotgun in his hand—
A few seconds later, McMillan suddenly realized that it was "wrong" for him to suddenly have a gun in his possession!
He quickly tossed the shotgun aside, his face flushed, and explained, "I'm sorry, it was just a reflex—you know, we're Westerners."
Larry looked away from the shotgun, then at him with a gentle gaze and a reassuring tone, "Oh! It's okay! It's normal. You have to deal with all sorts of people when you're in business."
McMillan nodded, then suddenly asked, "So, sir, who exactly are you?"
Larry smiled and held up one finger. "I'm the kind of guy who can help Cargill escape Hellfire. You can call me Larry Livingston."