C Magazine - Spring 2018

Dealing Durum

Patricia Miller 2018-04-26 06:37:51

In 1982, Tom DeSmet, far right, and Alain Solal, seated right, forged a relationship between CHS and CAM Négoce that continues with Ryan Caffrey, far left, and Roger Baker, second from left, both with CHS.

HOW TWO COMPANIES FORGED A GRAIN TRADING BOND THAT SPANS GENERATIONS

The year was 1982. CHS was just beginning to dip its toe into the tricky waters of international grain trading. Tom DeSmet, senior durum wheat merchant, was excited about making this new venture work, but he had a problem: Although he had a high-quality source of durum wheat produced by CHS member-owners in the Dakotas, he didn’t have ships to transport the wheat to customers overseas. That left him at the mercy of the trading companies, who preferred to originate their own grain and ship through their own terminals.

“We needed vessels to keep the terminal open,” DeSmet says.

Half a world away, Jacques Solal also had a problem: Although his company, CAM Négoce, had long-standing relationships with grain customers in North Africa, he didn’t have reliable access to the Duluth–Superior grain terminals, known to provide high-quality durum. Without a connection to a terminal, his ships had unnecessarily long wait periods before loading, increasing his shipping costs.

In 1982, Tom DeSmet, far right, and Alain Solal, seated right, forged a relationship between CHS and CAM Négoce that continues with Ryan Caffrey, far left, and Roger Baker, second from left, both with CHS.

The solution arrived when a third-party grain trade matched the two organizations and CAM Négoce ships came in and loaded CHS durum. After a few more shipments, each company decided they liked and trusted the way the other did business. Before long, they were working together exclusively.

“CHS had the terminal and the grain; CAM had the vessels and the customers,” says DeSmet. “It was a perfect fit.”

Isaac Solal,founded CAM Négoce in 1919.

This synergy also was perfect for the durum producers in the U.S. and millers in Algeria, Tunisia and Morocco. Farmers in North Dakota, South Dakota, northwestern Minnesota and Montana, where durum wheat flourishes, reaped a reliable market for their grain. Millers gained a steady supply of high-quality durum to grind into semolina, a coarse meal ideal for couscous. Couscous is a staple of North African cooking, creating steady demand for Midwestern durum supplied by the CHS–CAM Négoce link.

From Dakota Farms to Algerian Tables

Founded in 1919 by Isaac Solal, CAM Négoce spent the next 20 years building relationships with millers in North Africa. The company and its customer base survived the Great Depression in the 1930s, but then came World War II. The Solal family is Jewish, and when the Germans occupied Algeria, Jews were barred from owning property or businesses. The Solals relocated to Paris, but first transferred their company to a Muslim friend to hold it for them until the war’s end.

His grandson Jacques, helped build the company into an international trading firm.

“I can’t remember a single case when we had issues with quality.” — Alain Solal

The post-war years were a time of growth and expansion for both CAM and CHS. From a base in Algiers, CAM developed a network of 53 local offices throughout Algeria, Tunisia and Morocco. CHS grew its grain business through mergers and acquisitions with other companies and cooperatives.

In 1962, Algeria declared independence from France. The new government ordered CAM out of the country and Paris became its headquarters. Jacques Solal, Isaac’s grandson, was running the company.

Despite the turmoil, the Algerian government recognized the value of having a reliable supplier of durum wheat. “Everyone wants a plate of couscous and a baguette every day,” says Jacques’ son Alain, “so they knew they couldn’t disrupt our trading system.”

5% to 8%

durum portion of global wheat production

One casualty of the revolution was agricultural production. As the country’s population grew and grain supply dwindled, Algeria went from being a wheat exporter to a wheat importer. And CAM went shopping for U.S. durum.

Delivered as Promised

With established markets and contacts in North Africa, CAM could take all the durum CHS could deliver through the Duluth–Superior port, while also reducing risk related to shipping by having vessels available at the port when the grain was delivered. In return for that ready market, CAM required clean, high-quality, high-vitreous durum.

Beginning in 1982, CAM and CHS navigated the intricacies of global trade, moving durum from the Duluth–Superior port to millers in North Africa. It wasn’t always smooth sailing. Political upheavals and government regulations rocked the trade environment in North Africa. And competitors clamored for CHS durum, although they lacked the solid business foundation provided by CAM.

Through it all, payments and paperwork moved efficiently between the two organizations, ship arrivals and grain deliveries were coordinated, and trust and respect continued to grow, with each knowing the other would deliver as promised.

“When we gave CHS our specs, we knew they would meet them when the grain was delivered,” says Alain. “I can’t remember a single case when we had issues with quality.”

While CAM negotiated the ins and outs of North African trade and politics, CHS was dealing with two major production challenges: wheat quality and climate change, which affected growing conditions for durum. Durum wheat doesn’t grow just anywhere, preferring hot, dry conditions. Vitreousness, an indication of wheat hardness and protein content, can be affected by too much rain at the wrong time.

1. 7 billion bushels

U.S. total wheat production in 2017

Quality management tends to make the durum market very volatile and demand for corn has shifted some acres away from wheat. Today the U.S. produces only about 55 million to 70 million bushels of durum per year, down from more than 120 million bushels when CHS and CAM began trading together.

54. 9 million bushels

U. S. durum wheat production in 2017

To meet the demands of North African and Italian processors, CHS began supplementing its U.S. supply by sourcing durum in other parts of the world, including Mexico, Canada and Australia, further establishing itself as a major player in the world durum market.

Ryan Caffrey, CHS senior durum merchant, says that its successful relationship with CAM helped create the template for CHS international grain trade.

Four Decades of Trust

The relationship forged by two companies — a fourgeneration family business in France and a U.S.-based farmer-owned cooperative — continues to thrive. Today, Jacques Solal is in his 90s, Tom DeSmet has retired and Alain Solal has brought his sons Romain, Emanuel and Laurent into the business. Caff rey works as closely with Romain as DeSmet once did with Jacques and Alain.

“We complement each other by focusing on what we do really well,” Caff rey says. “And we operate on the founding principles of mutual trust, respect and integrity.”

That first toe-dipping into international trade led CHS to become — and remain — relevant in the global durum market. While worldwide demand for durum remains relatively flat, CHS maintains a strong market in North Africa for its member-owners through CAM.

Compagnie Algérienne de Meunerie (CAM) Négoce is a Paris-based grain trading company that sells U.S. wheat to millers in Algeria, Tunisia and Morocco.

In Latin, “durum” means “hard.”

“Vitreousness” is the term used to describe the hardness and protein level of a durum kernel. Vitreous wheat is considered to be of higher quality than other grades.

Millers need vitreous durum wheat to produce a high volume of semolina.

Durum flour and semolina are used to make pasta, couscous, bread and other products.

Trading on Trust

By Annette Degnan

Customers at the far ends of the CHS supply chain seldom find themselves in the same room, but when they do, it is quickly apparent that their success depends on trust and customer focus.

“What we look for in a supplier is reliability and the ability to cleanly execute, all based on trust,” says Gunther Gossmann, executive vice president for grain procurement, Corporación Multi Inversiones, a diversified animal production, food, real estate and energy company with operations in Central America, Mexico and the Caribbean.

“CHS watches out for market risks and we have open discussions about origination and transportation variables. If necessary, we develop contingency plans together,” says Gossmann, who has purchased wheat, corn and feed grains from CHS for the past 15 years.

Scott Syslo, who leads wheat procurement and risk management for Ardent Mills, a joint venture company owned by ConAgra, Cargill and CHS, agrees that trust is paramount in business relationships and, while there will always be wrinkles in supply chains, collaboration is key.

“We’ve noticed our customers are taking longer coverage on flour contracts, which creates an opportunity to work with CHS to reduce risk and volatility,” says Syslo. “The further out we can sell flour, the better the market position we all enjoy.”

CHS Global Grain Marketing sells wheat to Ardent Mills, and CHS Processing and Food Ingredients sells soybean oil to Ventura Foods, a joint venture company equally owned by CHS and Mitsui & Co.

Ingredient customization is another avenue for increasing margins for CHS customers. “In the restaurant world where margins are thin, flavor is everything,” says Scott Anthony, executive vice president and chief financial officer, Ventura Foods. Chefs and culinary teams at Ventura Foods work with customers to create special recipes using CHS-sourced soybean oil in new flavor combinations.

Those custom recipes help build demand. “Everybody wants a special sauce,” says Anthony. “The unique sauces Ventura Foods develops with our restaurant customers are key elements in developing profitable, long-term relationships.”

The benefits of those strong customer relationships with CHS extend to local cooperatives and farmerowners. “The value of any relationship is the ability to celebrate successes and to discuss defeats,” says CHS grain marketing customer Roger Hugenberg, general manager, Ursa (Ill.) Farmers Cooperative. “I consider CHS resources second to none, and our relationship is one of not being afraid to challenge the system in search of mutually beneficial opportunities.”

Published by CHS Inc. View All Articles.

This page can be found at https://c.chsinc.com/article/Dealing+Durum/3067005/491051/article.html.