CHICAGO – Over the past two years, Archer Daniels Midland Co. has identified the flavor business and other sectors of the ingredient market as the most promising area for expansion and growth by the company. Still, Chicago-based ADM continues to find lucrative opportunities for enhancing its heritage grain processing and handling businesses, said Juan Luciano, the company’s chairman and chief executive officer.
Mr. Luciano discussed the company’s processing businesses and his own background in a recent interview with Milling & Baking News.
From the time he joined the company in 2011 as chief operating officer, Mr. Luciano has highlighted “operational excellence” across all of ADM’s lines of businesses as a constant area of focus.
Central to finding opportunities for achieving operational excellence has been the effort by Mr. Luciano to introduce a nuanced but meaningful shift in the company’s institutional character.
“At ADM there is an owner mindset that is very frugal — incredibly productive,” he said. “My point, basically, was that just being frugal is like wanting to go to the Olympics and choosing to go on a diet. You may end up in the Olympics in a very weak condition. You need to strengthen yourself, and that’s not necessarily achieved by dieting. To me, being frugal doesn’t necessarily equate to low cost.”
Achieving low cost status requires investing in technology, something ADM has wholeheartedly embraced during Mr. Luciano’s tenure, he said.
“Maybe many years ago just having scale and being frugal were enough to be a low cost producer,” he said. “Today, you need to have technology. We introduced a lot of technology in processing, and we have been establishing cost targets, and we’ve been beating, delivering and over-delivering on those cost targets for the last few years.”
As an example, he cited progress ADM Milling has achieved improving operations at the company’s 34 wheat flour mills in North America and the Caribbean. He said these improvements were achieved through a combination of investment in technology combined with better “blocking and tackling.”
“We’ve done work to improve yields, we’re focused on energy efficiency, and maintenance,” he said. “We changed a lot of what we were doing to enhance our procurement capabilities We launched what we call 1ADM, which is our integrated system that allows the company to tackle greater complexity without changing the number of people.”
Even as he aspires to shed the company’s “frugal” tag, Mr. Luciano continued to wholeheartedly embrace its reputation as a “lean” business.
“We are very proud about how lean we are, and we want to be able to remain small in that manner because that smallness gives us the feeling of ownership and everybody touches everything,” he said. “What each person does is relevant. You don’t have a job that is not core to strategy.”
This lean mentality was an important part of what attracted Mr. Luciano to ADM five years ago.
Still, questions about the transferability of his skills made Mr. Luciano reluctant when he was recruited as a designated successor to Patricia Woertz. At the time, Mr. Luciano was an executive vice-president at Dow
Chemical Co., where he held positions in Argentina, Brazil and Michigan since 1985 (see story on Page 22 for more on his background).
“In my first interview I was trying to convince the board I was not the right candidate, but something sparked my curiosity,” he said. “When I was in Argentina, I knew I was doing good work, and then they offered me an international assignment to live in Brazil. Then to live in Midland (Michigan). You pause a little bit because you wonder how well your skills or your success is actually transferable to another culture. Because in your culture, you are somebody beyond what you do. You are somebody because of your social position, your company, your heritage, your family and all that. When you go somewhere else, all that is stripped out of you. I went to Brazil, and then I was successful in Brazil. I went to Midland; I was successful. So, to a certain degree, mentally, I checked, okay, my skills are transferable through geography boundaries.”
An initial reluctance to consider ADM (the courting period lasted a few months) reflected Mr. Luciano’s lack of a background in agriculture and what he conceded was a monolithic view on his part of ADM as just a grain trader. Commonalities between Dow and ADM quickly became clearer. Both companies begin with trading and handling feedstock (grains at ADM, hydrocarbons at Dow) and processing those into basic products and specialty products.
“I did risk management at Dow,” he said. “When I realized that the value chain at ADM was as long as it is today — that includes origination, storage, transportation, basic processing, refining, and ingredients — we were not that much different. There were a lot of parallels. Dow was trying to maximize the value out of a barrel of oil or a cubic meter of natural gas. ADM was doing it out of a bushel of corn, wheat or soybeans. It was not that different in that sense and in the skills needed —- risk management but also operational excellence and basic manufacturing as well as skills in distribution and sales and marketing. I knew those things, but what basically you don’t know when you go into a different industry is pretty much the lexicon.
“During the recruitment, they did a good job of planting so many seeds in my head that I began reading a little bit more about agriculture and suddenly I understood the challenges that ADM faced. I had said ‘no,’ but my mind started questioning, wondering, ‘Can I address that?’ ‘Maybe they should be doing this.’”
Value of a lean culture
Ultimately, corporate culture, including the people of ADM, proved to be a deciding factor for Mr. Luciano. He joined the company as chief operating officer in April 2011, was promoted to president in 2014, to c.e.o. in January 2015 and to chairman of the board in January 2016.
“Culture is very important to me,” he said. “Dow is a Midwestern company, started in the middle of Michigan. There is a lot in that I like. And the people at ADM are very much like myself. We are people who lower our heads and do the work and do not make a lot of noise about what we’re doing. There is an ownership mindset, people who care deeply. It’s difficult for me to work with different people than that.
“Somebody once asked me, ‘How do you pick your people?’ I have spent a lot of time thinking, ‘what people do I really gravitate toward?’ And I believe I like to work with people who want to complicate their lives. There’s something that your mother or your father did when you were very young that put you in that position in which certain people want to complicate their lives. And some people want to get out of work sooner because they have other priorities. And that’s all right. You can live life in different ways. I need to think that you are as passionate and as engaged in what you are doing as I am for me to work well with you. Because, if not, I will worry sick all the time. And I worry all the time anyways, but at least I know you’re also worrying with me.
“And I feel that intensity in ADM. You go on a Saturday to Decatur (Ill.) and you’ll see people on the trading floor at work. I came to the office at 6:00 a.m. in Decatur, and I was not the first in the office. I couldn’t beat people to the office even if I woke up at 5:30 in the morning. There’s something to be said about that because their bosses are not there at 5:00 a.m. and they still go there at 5:00 a.m. Nobody forces people to do that. And that’s why we are able to do so much with 32,000 people. They are unique, and that, to be honest, is what made me say ‘yes.’”
When he began as chief operating officer, Mr. Luciano’s first months were spent listening and learning the new lexicon of the grain and processing industries. ADM is one of the world’s largest oilseeds and corn processors as well as flour millers and biofuels producers. Its corn processing business, for example, operates facilities (both corn wet milling and dry corn milling) in the United States, Bulgaria, Turkey, Morocco, Mexico and China.
“It’s difficult to grasp the size of the company,” he said. “Because you may understand the businesses, but you can go deeper and deeper — more complexities and more units and more products and more geographies. I tried to have a goal in the first year to visit every facility, but I don’t think I achieved it. I think I failed miserably. There are so many.”
Still a force in milling
For many years, ADM Milling Co. was the largest or nearly the largest flour milling company in the United States. The creation of Ardent Mills L.L.C. in 2014 through the merger of Horizon Milling and ConAgra Mills has made ADM a distant second in terms of daily milling capacity. The shifting competitive landscape has not undercut ADM’s prospects for success, Mr. Luciano said. He described wheat milling as a “cornerstone” business for the company.
“We are not tied to a specific market position, if you will,” Mr. Luciano said. “I think the important thing is that we have a size that allows us to continue to be relevant to customers and continue to provide quality products to our customers. So, the fact that now we’re not exactly the largest milling company hasn’t changed that position. We are No. 2, and I’m fine with that.
“We continue to invest. The milling industry is an industry in which some of the facilities are getting old, in general. It was less than two years ago we invested in Beech Grove, Ind., increasing capacity there by nearly 50% when we added a new mill adjacent to the existing mill. We continue to consider how to upgrade our asset base and continue to remain efficient and more relevant to customers.”
Silver linings in ethanol
While not unconcerned by the ethanol business in a period of depressed oil prices, Mr. Luciano said many positives in the sector have not been sufficiently appreciated.
“It’s interesting, that if you separate just the demand and the supply, demand has been very good in ethanol,” he said. “With low oil prices, everybody tends to think that lower prices have been bad for ethanol. Low oil prices actually have driven demand up for domestic gasoline. Demand has been up in 2015; it is still up in 2016 a few percentage points. Domestic demand has been good. And ethanol has started to conquer export markets, and we continue to do very well in export markets.”
Two principal sources of demand have emerged for ethanol, beginning with countries looking for cleaner fuels, Mr. Luciano said. He noted India and China have become new major importers of ethanol from the United States. The second market for ethanol is as an octane booster.
“You need to add an oxygenate,” he said. “Ethanol is 113, so it’s the cheapest octane out there.
“Export demand has been good. The issue has been supply. After the good times that we had in 2014, people started to produce more, and we grew inventory held in the industry. What we’ve been doing recently is to try to balance that. We’ve been running for yield. You can run the plant for volume or you can run the plant for yield, and we try to run the plant for lowest possible cost. Not just for volume because obviously the industry with these low margins, doesn’t need any more volume. And, we’ve been very heavily attacking our cost position over the years, and we continue to do that.”
More profits returned to shareholders
Discussing ADM’s thinking regarding capital spending from year to year, Mr. Luciano said the company retains and reinvests between 30% and 40% of cash flow, leaving 60% to 70% to return to shareholders or to use for acquisitions..
“As we feel more comfortable and we move a little bit toward more stable earnings, we may be able to increase (the proportion returned to shareholders),” he said.
