A Day in the Life of a Contracts Analyst atCargill

Glynis Gallagher works as a contracts analyst at Cargill RiskManagement, which is a business unit within Cargill. Based inWayzata, Minnesota, Cargill celebrated its 150th anniversary in2015. Cargill is a truly global company: With operations in morethan 60 countries, it markets food, agricultural, financial, andindustrial products and services to customers worldwide. Thecompany is one of the world’s top grain traders. In addition, ithas global beef operations, and it does business in starches andsweeteners as well. Cargill also processes steel and de-icing salt.Its revenues totaled $109,699 billion in 2017, making Cargill thelargest privately owned company in the United States.

Cargill is committed to feeding the world in a responsible way,while also reducing its environmental impact and improving thecommunities where its employees live and work. Writing in theintroduction to his 1979 book Merchants of Grain, authorDan Morgan noted:

Grain is the only resource in the world that is even morecentral to modern civilization than oil. It goes without sayingthat grain is essential to human lives and health.… As Americabecame the center of the planetary food system, trade routes weretransformed, new economic relationships took shape, and grainbecame one of the foundations of the postwar American Empire.

Today, as the saying goes, “You can’t walk down the groceryaisle without seeing something Cargill has been involved with inone way or another.” A recent article in Forbes describedthe scope of the company’s operations:

Cargill, the $135 billion (fiscal year 2014 sales) family-ownedfood behemoth dominates all roads between the world’s farms andyour dinner plate.… Since the company was founded in 1865, the coreof its business has always been trading commodities—buying,storing, shipping and selling the crops farmers grow around theworld.

Commodities processing is a high-volume, low-margin business;Cargill crushes large quantities of soybeans each day. Because thecompany is privately held, Cargill can pursue long-term investmentopportunities in many global markets. For example, it has had amajor presence in India and other emerging markets for decades. Thecompany has made large investments in cocoa, sugar, and foodinnovation.

The career path of Greg Page, former Cargill CEO and currentexecutive chairman, shows the range of job opportunities Cargilloffers its employees. After graduating from college, Page took atrainee position in the Feed Division. In subsequent years, he helda number of positions in the United States and Singapore. He wasalso involved with the startup of a poultry processing facility inThailand. Today, Cargill exports roughly 100 million metric tons ofchicken from Thailand every year.

Gallagher graduated from a large Midwestern university in 2012with a major in marketing. She spent fall semester of her senioryear studying in northern Italy. Many of her business courseshelped prepare her for her current role. She recalls, “Although Inever took a course focused on derivatives and trading exclusively,my math and finance courses gave me a solid foundation in order tounderstand portfolio exposures, fee schedules, and financingoptions we utilize every day. My marketing courses have allowed meto use this data in a more customer-focused approach on a dailybasis.”

Cargill Risk Management is part of Financial Services, one ofCargill’s six platforms that comprise 65 business units. Cargill,through Cargill Risk Management, is a registered limiteddesignation swap dealer with the U.S. Commodities Futures TradingCommission (CFTC). Gallagher must make sure that everything shedoes for customers complies with CFTC swap dealing guidelines.Cargill and other commodities trade houses are industry members ofthe Commodity Markets Council, a trade group that serves as aliaison between companies and the government.

Gallagher is a contracts analyst. She says, “I have always beeninterested in law. Becoming a contracts analyst in such a regulatedindustry allowed me to gain exposure to contractual language, legalrequirements, and the regulatory environment. For example, if youdo not set up a contract properly, you are opening yourself up tounnecessary risk.” As Gallagher explains, “In today’s highlyregulated and changing business environment, it is essential toprotect yourself while completing business transactions. Being partof this facet of the business is a daily challenge. It pushes meoutside of my comfort zone to understand a basic question—namely,what is the true risk here for Cargill?”

As noted previously, Cargill Risk Management is a limiteddesignated swap dealer. What’s a “swap”? Swaps, also known asover-the-counter (OTC) transactions, can be complex financialstructures that derive their value from something else—a futurescontract, for example. Swaps are traded in direct negotiationbetween buyer and seller; they represent a $700 trillion market.Who uses swaps? Gallagher’s business unit services a variety ofcustomers, including farmers, major airlines, food companies,investment funds, oil companies, and many others.

Gallagher’s business unit works with its customers to providecommodities hedges through swaps and structured products. Thecommodities in question are often agricultural commodities such asgrains (e.g., corn, wheat, and soybeans), as well as beef and otheranimal proteins. Cargill also deals in metals and energy. Hedgingis a financial strategy that allows a customer to lock in the pricefor a specific commodity purchase in the future. An important partof Gallagher’s job is to work diligently to understand customers’business objectives, and to ensure contractual terms are alignedwith these strategies. The Cargill team assists customers bycreating tailored risk management solutions to reduce risks anduncertainty by having more diversified hedging portfolios.

Consider the following example: When a large restaurant chainpurchases cooking oil, it must manage budgets and margins to ensureprofitability. When the price of oil seeds—a commodity—increases,the company needs to find a way to offset this increase instead ofpassing along the cost to its customers in the form of higherprices. Of course, market volatility and cost swings are difficultto predict—so how is the restaurant chain able to do this? Helpingcustomers answer this question is an important part of Gallagher’steam’s job.

Summing up her experience, Gallagher says, “I enjoy working withour customers in more than 60 countries throughout the world. With16 global offices, I am exposed to different cultures and businesspractices that challenge me to think globally. Understanding wherethe customer is coming from allows me to succeed in helping themunderstand and navigate this complex field. Ultimately, I am partof the process which allows enterprises ranging from hugecorporations to small farmers succeed in managing their overallrisk.”

Requirements>

1. Overview of the Case Study 5-6 sentences
2. Statement of the Problem 1-2 sentences
3. Alternatives to Solve the Problem - List and provide a separateheading for each alternative - 1 - 2 pages
4. Recommendation on the basis of recommendation - 5-6sentences
5. Implementation plant for recommended alternative - 6sentences
6. Current Event - Link the case to current update event