Cargill President Erwin Kelm foresees market changes and makes a wise investment in export terminals.
When Cargill opened a new grain elevator in Houston, Texas, in late 1967, the facility was most notable for what it could not do. Unlike existing elevators, it could not load grain into a truck, nor could it tap its three-million-bushel storage capacity to fill a railcar. The terminal was built specifically for exporting grain out of the United States. It was the first of a new breed of Cargill elevators using automated controls to empty trucks and railcars fast, and load grain onto ships in record time.
Grain exports had been a significant part of Cargill’s business since 1960, but much of the company’s grain handling was focused on high storage capacity, not the quick and efficient transfer of grain to ever-larger oceangoing vessels. Erwin Kelm, Cargill’s president from 1960 to 1976, took inventory of Cargill’s aging elevator system and did not believe it could handle the expected increase of wheat, corn and soybean exports from the United States. He made a calculated guess about the future of the market and began investing in modernizing Cargill’s grain terminals.
Houston was chosen to be first because it was the terminus of all rail lines coming from the plains in the US Midwest. While barges were important in bringing grain to gulf export terminals, Cargill needed the ability to handle higher-capacity railcars like those in use following Cargill’s investment in hopper cars in 1964, and in unit trains in 1967. The Houston terminal opened with a total capacity of 70,000 bushels per hour, which was made possible by five elevating legs and high-tech electronic controls unknown to earlier elevators.
For the first few years, the elevator struggled and some worried that Cargill’s investment in American export terminals during an economic downturn might have been a bad decision. Then in 1971, a perfect storm rolled in, combining a bad year for Soviet Union crops with relaxed US government shipping requirements. As a result, the Soviet Union purchased nearly 1.6 billion bushels of US grain—with Cargill supplying 28% of the total. Suddenly, the decision to modernize looked like a brilliant strategic move, and the Houston elevator paid for itself twice over with the volume it handled from those Soviet Union sales alone.
Clifford Roberts, the head of Cargill’s grain division, noted, “One of our great concerns was that we should not be left out, that we should get our share. We did not want to stay on the side and let others do the business. We felt even if we did it at cost, we had to do it at cost. We had to be on their books.”
While the entire US grain transportation system was stretched to its limits, Cargill had gambled that a large export market was coming that would justify these types of terminals. In fact, the market was not just large—it was huge. American farmers and Soviet Union consumers benefitted then, and thanks to Cargill’s continuing investment in moving grain, the world continues to receive US grain through massive export terminals today.