Central Soya Company, Inc.

1898–1991

Central Soya Company, Inc. is a leading international agribusiness company that processes, refines, and manufactures oilseed and animal feed products. Principal operations include soybean processing, feed manufacturing, vegetable oil refining, and grain merchandising, as well as the manufacture of soy protein and lecithin. Beginning in the mid-1980s, the company underwent several changes that affected its structure as it entered the 1990s. In July 1985 it was acquired by Shamrock Capital L. P. in a leveraged buy-out. By September of 1987 it was sold to Ferruzzi Agricola Finanziario, representing he largest U.S. acquisition ever made by an Italian company. The Ferruzzi deal opened up extensive new international markets, especially in Europe. Major strategic alliances were made in 1990, resulting in the establishment of CSY Agri-Processing, a holding company controlling Central Soya Comapny, inc., Oilseed Products Group, Central Soya Feed Company, Inc., Privimi Holding B.V., Innovative Pork Concepts, and CanAmera Foods. Thus, in order to most flexibly respond to market demands of the 1990s, Central Soya became a member of a group designed to collectively coordinate soybean processing, feed manufacturing, grain merchandising, vegetable oil refining, the manufacture of soy proteins and lecithin, and pork processing.

When Central Soya was founded in 1934, in Decatur, Indiana, its primary objectives were to process soybeans, market soybean meal and oil, and manufacture and market livestock and poultry feeds. At that time, the soybean was a relatively new crop in the United States, even though it had been widely used in the Far East since 200 B.C., and possibly earlier. Although the U.S. Department of Agriculture began significant importation of varieties from Asian countries in 1898, the bean did not take off commercially until after World War II. The industry quickly grew, however, becoming the world leader by the 1970s and accounting for approximately 65 percent of the global crop by 1990.

Due to a powerful concentration of amino acids, soybeans contain twice as much protein as beef and are high in nutrition. They are inexpensive and are characterized by extremely high yield under optimal weather conditions. A single seed can create a bushy plant averaging three feet in height; a single plant can produce up to 100 pods; and a bushel of soybeans (59 pounds) can be processed into more than 11 pounds of oil and 47 pounds of meal translating into protein-rich food supplements, among other things. Dale W. McMillen Sr., the founder of Central Soya, pioneered this relatively new crop by exploiting its naturally high protein content for livestock and poultry feeds (and eventually for human consumption as well). In 1953, his sons&eemChairperson Harold and President Dale Jr.--assumed control and furthered their father's innovations.

The first years of Central Soya's business focused primarily on the expansion of its original business, processing beans and producing soybean meal, crude soybean oil, and animal feed. In 1940, the company built its Gibson City, Illinois, soybean processing plant, which proved consistently successful, employing 150 workers and yielding $141 million in sales by 1991. After World War II, the industry developed highly sophisticated processing methods for extracting meal and oil, resulting in production boosts, often to the overcapacity level.

Such overproduction, paired with the characteristically unsteady crop output (due to fluctuations in climate and in planting strategies), resulted in a period of low profits. In response, Central Soya and others entered a period of diversification into grain merchandising and, in the soybean product line, the development of soy protein and lecithin products. In 1956, the company moved into grain merchandising because it had excess space to store grain in the summer, when soybean stocks were down. By 1966, grain merchandising accounted for approximately 15 percent of sales and profits. As the company had already diversified into the feed industry, consuming much of its own meal, it next went one step further, into the poultry and egg business. In November of 1962, Central Soya acquired Tennessee Egg Co., and in 1964 it acquired Selby Food Co., a turkey grower from Iowa. Furthermore, in 1961, the company began refining industrial soybean oil, and by 1970 it had opened its first edible vegetable oils refinery in Decatur, Indiana. In 1964, it expanded its feeds market by opening the first of many feed manufacturing plants outside the United States, in this case Guatemala. Thus the overall trend, from the 1950s onward, was one of diversification and of growing interdependence between its own processing and its own end products.

In 1940, the company built its Gibson City, Illinois, soybean processing plant, which proved consistently successful, employing 150 workers and yielding $141 million in sales by 1991.

1965–1980

By the late 1960s and early 1970s, diversification and growth had paid off. The soybean had reached its heyday. In 1966, the harvest soared to about 880 million bushels, up from a record 844 the previous year; soybeans toppled wheat on the Chicago Board of Trade, ranking in dollar trading as the country's leading commodity. Central Soya became a market leader, handling 84 million bushels a year and seeing its earnings rise to $4.75 a share, up from $3.13 in 1965. The company expanded rapidly, acquiring McKee Feed & Grain Co., Clinton Milling Co., Austin Farms, Inc., and A.B.C. Grain Corp. all in a matter of months.

An era of American affluence created a booming market for meats and poultry, which in turn positively affected the soy and feed industries. At the same time, a trend toward more healthful foods accelerated growth in the market for high protein soy products, which were low in fat and cholesterol. A process developed in the 1950s, by a chemist named Robert Boyer, enabled food manufacturers to transform the soybean into a wide variety of high protein, textured foods resembling hamburger, chicken, beef, bacon, dried fruit, potato chips, or other foods requiring inexpensive, healthy substitutes. Soy margarine, "soyburgers," and tofu became not only viable but fashionable alternatives. Central Soya developed a 97 percent pure protein called "Promine," marketed as a binder for sausages, bologna, and other process meats. In addition, the company developed a dairy substitute that could be frozen into an icecream-like dessert or exported as a flexible dietary supplement. In conjunction with these endeavors, Central Soya entered the processed food industry, acquiring Fred's Frozen Foods, Inc. in 1970, which it sold to International Multifoods Corp. 16 years later. Soy extracts became increasingly important in other industrial products ranging from paints to printing inks, insect sprays, adhesives, and nail polish. A 1966 article in Barron's, entitled "Jack and the Soy Bean," epitomized the crop's tremendous potential by referring to the folktale in which a bean stalk grows uncontrollably, carrying its cultivator up to a different world.

Soybeans carried Central Soya to different continents, as the international market took off in the 1960s, turning soybeans into the number one export crop in the United States. West Germany represented the largest European market, followed closely by other countries of the common market, where grain production could not keep pace with demand for meat, milk, and eggs. Japanese markets also increased dramatically, reflecting rapidly rising consumption of animal protein. In 1972, Central Soya acquired Industriele B Bonda-Rotterdam N.V. (Bonda Industrial Corp.), a holding company controlling a group of companies manufacturing and marketing livestock and poultry feed concentrates principally in Holland, Belgium, Portugal, and Canada. Central Soya had become a major player in international agribusiness.

Despite such growth, the market was volatile, and Central Soya's profits oscillated dramatically. Pretax earnings swung from $30 million in 1971 up to $64 million in 1974 and then down to $34 million in 1975; in 1976, earnings were back up to $71 million and then down to $22 million in 1977; in 1980, $57.3 million marked a fall from $59 million in 1979. In order to stabilize the profit base, chairperson, president, and CEO Douglas Fleming drafted a plan that would trim grain merchandising, develop new feed products with higher margins, and expand in processed food and chemurgy.

To secure itself against changes in the soy market, the company also depended on its vital practice of hedging soybean purchases in order to fix its processing margins. Roughly, hedging works as follows: when a firm contracts to buy beans, it sells a futures contract for an identical amount. If prices drop, inventory values fall. Gains on the future sales, however, offset the inventory losses. If prices rise, the inventory appreciation is offset by losses on the futures sales. Creative hedging is necessary for survival in the soybean industry.

1985–1992

In April 1985, Shamrock Capital L.P., a limited partnership wholly owned by the Roy E. Disney family, acquired Central Soya in a leveraged buy-out. Shamrock bought all outstanding shares of common stock at $24.25 cash per share, amounting to an aggregate of $275 million. In August, Fleming retired ceding the post of chair and chief executive to Donald P. Eckrich. With Central Soya's debt at 89.5 percent of capitalization, Standard & Poor lowered the company's senior debt ratings to "B" from "BBB" and removed them from Credit-Watch, where they had been listed in March. In a July letter to employees, Eckrich welcomed the Shamrock executive, Stanley P. Gold, to his new post as chairperson of Central Soya, and expressed plans for "a stronger, larger company with emphasis on increasing our market share, margins and profitability."

Two years later, in September of 1987, Shamrock announced the sale of Central Soya, which had been refocused to its core businesses, to Ferruzzi Agricola Finanziario, a holding company of the Ferruzzi Group based in Ravenna, Italy. In a news briefing, Central Soya's president and chief executive expressed appreciation for the restructuring input and growth associated with Shamrock as well as optimism at "expanded product lines in Europe as an integral part of the Ferruzzi organization." Ferruzzi, one of the largest agribusiness organizations in the world, comprised three major operations: soy, corn, and sugar processing; commodity trading; and chemical engineering. The Ferruzzi/Central Soya merger promised accelerated growth and stronger competition.

In some ways, growth was too strong, resulting in a July 1989 lawsuit in which the Chicago Board of Trade (CBOT) sued Ferruzzi/Central Soya for trying to corner the soybean market. In January 1992, Ferruzzi settled--without admitting or denying charges--by paying CBOT $2 million in fines, $1 million in court expenses, and resigning its exchange seat. The case and its outcome were controversial, with some farmers arguing that CBOT employed an inefficient regulating system that weakened market prices.

The 1990s marked a change in growth strategy. Under the direction of David H. Swanson, Central Soya established the CSY Agri-Processing holding company in 1990. This holding company linked various businesses, all related to the production of food for human consumption, with an emphasis on added value through technology. The five primary holdings were: 1) Central Soya Company, Inc., for soybean processing, refined oil, and chemurgy; 2) Central Soya Feed Co., divided into the Domestic Feed Division, Animal Health and Nutrition, and International Feed; 3) Provimi Holding B.V., a significant exporter and developer/manager of technical service agreements with other feed manufacturers in Europe; 4) Innovative Pork Concepts, a joint venture with Mitsubishi Corp., running a fully automated pork processing facility, Indiana Packers Co., and providing genetic research and breeding stock facilities for hog producers; and 5) CanAmera Foods, a Canadian oilseed processing and vegetable oil refining venture. CSY was organized in order to decentralize the company and to best respond to complex market demands. Initial figures were promising: net sales increased in 1991 to $2.06 billion, from $1.95 billion the year before, and gross earnings increased 20.8 percent, to $64.4 million from $53.3 million, according to the 1991 annual report.

The company also renewed emphasis on research. Feed research, operating from Decatur and Kerkdriel, in the Netherlands, developed better feeding programs and production systems for feeds and feed concentrates. Oilseeds Research, based in Fort Wayne, Indiana, explored value-added products like proteins and lecithin.

1966–1992

Rapid growth, paired with the Ferruzzi affiliation, helped expand and already growing international market. Changes in the former Soviet Union and Eastern Europe opened new markets. In January 1990, for example, Agrokomplex-Central Soya was established. With 30.2 percent of its stock held by Central Soya, and 45 percent by Provimi Holding Co. (also owned by Central Soya), it produced around 18 percent of Hungary's animal feed. Central Soya entered India in November of 1991, agreeing on a joint venture with Birla Group, the largest industrial group in that country. In February of 1992, Central Soya and Germany's Stern Lecithin & Soja GmbH merged to form a venture that would yield an estimated annual revenue of $25 million, according to a European Information Service report. These and many other international ventures marked an increasingly global agenda.

While these represented promising signs for agribusiness, some analysts identified dangers. In the Des Moines Register, Douglas Constance and William Heffernan, two University of Missouri sociologists, warned that the world's large food corporations were replacing governments as shapers of agricultural policy. "The implications are devastating for nation-states trying to establish food security," they claimed. Even so, the soybean industry will continue to grow, along with Central Soya. In a 1966 Barron's article, John Haymaker, of Cargill, Inc., compared the beans to "those little animals in the Li'l Abner comic strip called Schmoos....When it comes to versatility, the Schmoos' only competitor is the soybean." With such a crop as its keystone, Central Soya is bound to excel.