Corn Products (Fortune 1938)

August 19, 2012: 9:00 AM ET

Editor's note: Each week we publish a favorite story from Fortune's archives. We turn to a 1938 article looking at Corn Products, which at the time was the world's biggest corn refinery. The severity of the worst U.S. drought in 56 years has pushed crop prices up for months. And with corn being America's biggest crop, its scarcity will mean all that's made with corn will get more expensive and impact many aspects of the economy, from fuel to food. Corn Products, known today as Ingredion Inc. (INGR), supplied the material for Argo cornstarch and Mazola corn oil. Here's a look at how widely the crop touches the world we live in.

Corn Products is a $110,000,000 U.S. company which began planting itself beyond tariff walls in 1919 and now operates in fourteen countries for a 1937 profit of $8,100,000.

FORTUNE -- A bushel of shelled corn. In the scales it is approximately fifty-six pounds. In the market, currently, it is about sixty cents. Toss it into a feeding trough for little pigs and eventually it is ten pounds of pork on the hoof. Ferment and distill it for five gallons of water-clear, throat-scorching corn liquor. Squeeze it and collect a pound and a half of brown corn oil. Grind it and get forty-three pounds of corn meal. Process it one way for thirty-odd pounds of cornstarch; another way for forty pounds of thick corn sirup; yet a third way for twenty-five pounds of dextrose sugar as white and fine as talc. Gather up the leavings for a couple of pounds of oil cake and a dozen of gluten feed and you have about exhausted the possibilities of a single bushel of shelled corn.

Now forget about just one bushel and contemplate instead the 2,500,000,000 bushels that U.S. farmers grow in an average year. It is, of course, altogether too much corn to comprehend unless you have the patience and naivete to reduce it to laid-end-to-end statistics like the number of ships that would be required to carry it to Europe or the dimensions of an elevator big enough to store it in one place or the tons of swollen goose livers it might produce for pate de foie gras. But at least you can see what becomes of it. You can picture the 60,000,000 hogs of America grunting and snuffling at their troughs; they take care of 40 per cent of the corn. Picture again feeding cattle, horses, poultry, and other domestic fauna and eliminate an additional 52 per cent. Of the remaining 200,000,000 bushels over half is consumed by the millers of corn meal and flour, by the distillers of industrial and potable alcohols and by the manufacturers of breakfast foods.

The balance—between 60,000,000 and 80,000,000 bushels—is the raw material of an industry that soaks it, heats it, shakes it, grinds it, presses it, and whirls it to extract from each bushel the starch and sugar and oil and sirup and feed detailed above. Part of the industry's product goes direct to housewives in the form of laundry starch, table sirup, salad oil, and other edibles, but the larger fraction is taken by light and heavy industrial customers. The industry has a certain preoccupation with tapioca, from which some of these substances are derived, but corn is its staff of life, and it deals only with corn off the cob. There is no connection between this industry and those rather unsatisfactory attempts you read about to manufacture cellulose for paper and power alcohol for motor fuel from cornstalks and cobs. Essentially the corn refining process is chemical, but it is a chemistry that has been translated almost entirely into mechanics. There are gauges, to be sure, and testing laboratories with crucibles and electric ovens and bright, poisonously colored liquids in cotton stoppered flasks, but the real work is done by wheels and pipes and steam and water and the physical forces of nature.

The world's biggest corn refinery is a great dinosaur of a plant at Argo, Illinois, on the southwestern limits of Chicago, a few minutes drive from the municipal airport. Argo is a place of ponderous shapes and vast noises and gigantic smells. The machinery is immense, the buildings so massive and dispersed that the railroad meandering among them looks like a toy. It is an unlikely setting for anything as homely as corn, but the corn is everywhere in evidence—yellow kernels scattered pathetically around the sooty railroad ties; corn roaring boisterously along high-speed belt conveyers; warm, moist corn dropping with a sibilant whoosh from the steeping tanks. And there is dust, the acrid, nose-stinging dust of dry corn sliding out of the boxcars and into the elevators, later the soft, white, pervasive starch dust that hangs in the air and gathers on the skin and hair of the workers, giving the Negroes among them a grotesque, piebald appearance, like Negroes in a surrealist painting.

With a daily grinding capacity of 80,000 bushels the Argo plant is more than half again as big as the next largest corn refinery, and it is a useful though somewhat crude symbol of its owner, the Corn Products Refining Co. For like the factory, Corn Products is the biggest thing of its kind. In a year when the whole industry grinds, say, 70,000,000 bushels Corn Products alone will grind about 30,000,000; when the industry does a gross business of $150,000,000 Corn will do around $60,000,000; of the industry's total U.S. investment of $175,000,000 Corn represents $66,000,000. The balance of the grind, the business, and the investment is mainly split between four units of a certain stature, since capital investments in the industry are too high to attract small competition. Graduated downward according to importance, the other units are the A. E. Staley Manufacturing Co., Penick & Ford, Ltd. Inc., the American Maize-Products Co., and the Clinton Corn Syrup Refining Co. Corn Products' capacity is roughly three times as big as Staley's, so there is no ambiguity about its being the leader of the industry.

BUT Corn has more than size. Corn has the smell and sense and shape of general well-being that come from thirty-two years of uninterrupted profits. And Corn has the hoariest tradition in the industry, as well as a prominent place in the studbook of American business, where, as the history shows, it might be listed as "By Standard Oil out of the Glucose Trust." Corn has all this, and still avoids being overly reverent about itself, having achieved a certain sophisticated informality in its public and intramural dealings. Most of the time, for example, tall, friendly Vice President Morris Sayre agrees with tall, cold-eyed President George Monroe Moffett, because President Moffett, who spends more days on his farm in Maryland than he does in his office in New York, is patently a smart man. But if Vice President Sayre feels that President Moffett is wrong about something he doesn't hesitate to march in and say "Boss, you're crazy" in almost so many words.

But, most especially, Corn has a theatre of operations which is not only incomparably the biggest in the refining industry, but which would be remarkable in any industry. So far as America goes, the theatre is fairly usual—general offices in an old-fashioned building with marble lobby and wire-cage elevators on Battery Place, Manhattan; one plant across the Hudson at Edgewater, New Jersey; others a thousand miles westward at Argo and Pekin, Illinois; a fourth at Kansas City, Missouri. And there are incidental properties—the Chicago, Peoria & Western Railway, a 22-mile line serving the Argo plant; the Hummel & Downing Co., manufacturers of boxes; the New England Grain Products Co., over 60 per cent owned by Corn Products, and a large customer of the parent company; the Crystal Car Line, a wholly owned tank-car company, which moves Corn's sirups and oil to market; the Resinox Corp., owned fifty-fifty by Corn Products and Commercial Solvents, making phenol-type plastics; the Investment Co., an obscure holding company; a modest interest in Allied Mills, Inc., feed merchants and distillers of gin.

It is when you leave the U.S., however, that Corn strikes you hardest. For here is a thoroughly American company doing a thoroughly American business of processing a thoroughly American crop, yet in a dozen countries it has established busy and profitable affiliates that admirably substitute for export markets throttled by economic and political nationalism. These affiliates are at Cardinal, in Ontario, Canada, to the north, and at Aguascalientes, Mexico, to the south. Still farther south there is a tapioca plantation in the Dominican Republic, which Corn would sometimes like to forget about. In South America there are plants in Sao Paulo, Brazil, and Baradero, Argentina. In the Orient a Corn subsidiary does its refining at Heijo on Japanese Korea. In Europe Corn companies operate at Manchester, England; Haubourdin, France; Massa, Italy; Barby, Germany; Sasvan-Gent, Holland; Boleraz, Czechoslovakia; and Jabuka, Jugoslavia. All of the foregoing are owned in the majority by Corn Products, and most are owned outright. For obvious reasons they conceal, or at least do not advertise their connections with the parent company, pretending instead to be completely indigenous to the countries in which they are located, being staffed with nationals of these countries, and generally doing as the Romans do. Together they have an annual grinding capacity of some 20,000,000 bushels. Last year they did a gross business in excess of $50,000,000 and Corn took from them some $4,000,000. Without them, Corn would have practically no foreign business, and it would spend many anguished hours wondering how to jump over or tunnel under the tariff walls. With them it has a big business which is expanding at the rate of 10 per cent a year and no tariff worries.

Including all domestic and foreign affiliates, Corn has a world investment of $100,000,000 in forty companies in fourteen countries. Net income from all sources was $8,100,000—$1,800,000 from U.S. operations, $4,000,000 from foreign and $1,300,000 from domestic affiliates, and $1,000,000 from an investment portfolio. Gross corn refining business of the parent company and its foreign subsidiaries was $150,000,000. For various reasons—chiefly that their accounts are not consolidated—the foreign companies cannot be considered simultaneously with the parent but must be discussed separately later on. Deducting them temporarily leaves Corn doing a handsome $68,000,000 business in the U.S. for a net operating profit of $1,800,000—abnormally low, it happens, because of the high price of corn last year. The business is nothing to compare with Standard Brands or General Foods or, for that matter, with Swift & Co. or Armour. But it is still a very comfortable business, and it deserves a wider reputation than it possesses. To the average man Corn Products is a corporate nonentity despite the fact that it has been in existence for thirty-two years and that it meets the public via such well-known products as Karo sirup, Mazola, Kre-Mel dessert, Linit and Argo starch, and several lesser name brands.

The history

In the main the story of Corn Products' evolution is tranquil and uncomplicated. The best place to begin it, possibly, is in the board room in the New York offices, where you may gaze for a moment at a conventional portrait in oils hanging against a paneled wall. The little light above the portrait is always burning from nine in the morning until the last executive goes home at night, for this old gentleman with the ruddy face and woolly mutton chops is Edward T. Bedford, Corn Products' founder. When he died in 1931 Mr. Bedford was two years more than an octogenarian, and he did not get into corn refining until he was past fifty. Here there is no reason to discuss that first half century, or the circumstances of his early life on a Connecticut farm, or his subsequent rise to power and affluence in the oil industry. The year 1899 is early enough to begin with Mr. Bedford, and of that year only two facts are of major importance. The first is that Mr. Bedford's son Fred had just graduated from Amherst; the second is that Mr. Bedford himself was a Director in the Standard Oil Co. with a name mentioned frequently along with the names Rockefeller, Pratt, and Rogers.

Now, obviously, a young man of Amherst '99 whose father is a Standard Oil Director does not have to worry unduly about the future, but as it turned out, Fred was different. Different enough, at any rate, to want to make a career for himself in a new business instead of squatting comfortably on father's coattails and ending up a bespatted junior Vice President in the Standard Oil. This show of initiative pleased E. T. Bedford, and he started looking around for a likely business that Fred could get into. Before long, and for various reasons that have no significance today, he decided that the glucose business was as likely as any.

At this point a few pieces of scenery must be moved into place, before old Mr. Bedford and young Mr. Bedford begin operations. In 1900 the U.S. corn-refining industry consisted of little besides a bloated Glucose Trust and a bloated Starch Trust, which shortly merged. The Glucose Trust was a crude, tactless, arrogant affair that looked vigorous from the outside but was financially cancerous within. It worked on the theory that if you bought out your competitors faster than they came along you would always have the market to yourself; and over the years it had made a fantastic accumulation of old, run-down, inefficient glucose factories, all of them needing new equipment and repairs, and most of them out of production entirely. Indeed, the Trust was such a notorious grabber of properties that more than one man made his fortune by simply throwing together new plants as cheaply as possible and waiting for the Trust to come along and buy them at a fancy price.

In addition to this the Trust had an almost Teutonic ineptitude when it came to dealing with people and opinions. It had, for example, made the mistake of firing a friend of a friend of E. T. Bedford's after agreeing to keep him on the payroll at a large salary following one of the innumerable mergers. It had also run up a fine bill with Standard for oil, and then refused to pay on the absurd ground that Standard Oil was a trust existing in violation of the Sherman Act. Anyone can imagine how that made the executives of Standard feel. When E. T. Bedford went around to those executives with the idea of starting a glucose business they responded enthusiastically. Immediate capital was pledged to give the Trust the horsewhipping it so richly deserved.

So in 1901 the New York Glucose Co. was formed, with $2,500,000 capital, and it started building a plant at Edgewater, New Jersey. Fearful of the Standard Oil money, the Glucose Trust made a frantic attempt to get control of New York Glucose, but E. T. Bedford cannily sold 49 per cent of the stock to the Trust, transferred the remaining 51 per cent to a dummy corporation called the General Trading Co. and by agreement with the Standard Oil executives and a few outside stockholders locked up these shares in escrow so that the Trust could never, never get hold of the vital 2 per cent it needed. By 1902, therefore, with the Edgewater plant just getting into production, the New York Glucose backers had already turned a large profit on the sale of stock to the Trust.

Although railroad freight rates shut New York Glucose out of all except the eastern and export markets the company was successful from the beginning. The whole history of this period can be condensed into the simple statement that the more it prospered the more the Trust declined until by the end of 1904 the 11 per cent dividends paid on its 49 per cent investment in New York Glucose represented a major part of the Trust's income. Shortsightedly the Trust carried on a terrific price war with New York Glucose, with the result that New York had a low profit in 1905 and not unexpectedly decided to pay no dividend at all. Whereupon the Trust wobbled and nearly collapsed. In 1906 there was a reorganization of the Trust which ousted the former President and installed—the stockholders clamored for him—E. T. Bedford. Thus New York Glucose merged with the Trust to form Corn Products Refining Co. with a capitalization of $30,000,000 in preferred and $50,000,000 in common shares. Up to now old Mr. Bedford had carried on at Standard Oil and handled the glucose business in his spare time, but following the merger he resigned to give full attention to the task of overhauling the vast rotten production structure that had been acquired from the Trust.

Young Mr. Bedford meanwhile was not too happy. He was learning the glucose business—as Treasurer and General Manager of Corn Products—and he was making money. But he was still working for his father instead of for himself, and throughout the first decade he kept an eye out for a possible move. In 1913 he had the opportunity to make one when the federal government began a Sherman Act prosecution of Corn Products. Corn had a number of affiliated properties, including a candy company and a 50 per cent interest in Penick & Ford, Ltd. Inc., a New Orleans molasses company. The latter thus also became a defendant in the case, and Messrs. Penick and Ford wanted to extricate themselves, but they had nothing like the $300,000 needed to buy back Corn's holding. But wealthy young Mr. Bedford liked both the men and knew their business to be a sound one so he offered to put in his own money and resign from Corn Products. This proposal caused a lot of hemming and hawing in Washington, but the Attorney General finally approved the transaction on condition that Penick & Ford should never receive preferential treatment from Corn Products in the matter of glucose prices, and that neither company should buy stock in the other. The Penick & Ford holding was one of the main issues in the antitrust action against Corn, and the case ended in 1919 by a decree of settlement ordering Corn Products to unload some other properties.

Old Mr. Bedford accepted young Mr. Bedford's leaving with composure, but later on it distressed him. For Penick & Ford started doing strange things. The company had always consumed large quantities of glucose in its molasses and mixed-sirup business, but in 1920 it started making glucose on its own account in competition with Corn Products, after young Mr. Bedford got into a row with old Mr. Bedford over a corn sirup contract. Penick & Ford very soon became not the largest, but easily the bitterest and most annoying competitor of Corn Products. Young Mr. Bedford and old Mr. Bedford lived as neighbors in Greens Farms, Connecticut, for many years, and played poker together in the club cars of the New Haven twice daily. But they were both high-tempered men and they could never talk business without fighting; eventually they had to agree never to say anything about corn refining in each other's company. As late as 193o—a year before his death—old Mr. Bedford declared out loud that he hoped he'd live to lick his son Fred in the dextrose infringement suit still before the U.S. Supreme Court, as well as in another which Penick & Ford brought against Corn in 1927 over an alleged infringement of a watersaving system. And still headed by Fred Bedford, Penick & Ford today is called Corri's ablest rival by Corn itself.

The overseas business

After 1920 there is not much to say about Corn Products in the U.S. except that it grew richer and solider and more conservative- a sample of the conservatism being E. T. Bedford's advice to some of the company's officers in the twenties not to buy Corn stock because he thought it was overpriced. But outside of America the history was just beginning. With some reluctance, and, ironically, at Fred's suggestion, E. T. Bedford in 1906 sent abroad George Mahana, former export manager in the Glucose Trust and today a Corn Products Vice President, to build up the export business for the company. Within ten years this business accounted for more than 20 per cent of Corn's total production, and in the all-time high year of 1922 the company shipped abroad the equivalent of a grind of 11,000,000 bushels of corn, compared to around 4,000,000 bushels for the rest of the industry. It was perfectly obvious after the war that trade was not going to be so free as it had been before, and possibly Corn even had some premonition of the quotas and tariffs and restrictions that by 1937 would reduce exports to a mere 3,000,000 bushels for the entire industry, and a million bushels for Corn itself. In any case, it decided to safeguard its foreign trade by building plants abroad. In 1919 it found the ruined shell of a refinery at Haubourdin, near Lille, France, and gave the bankrupt owner a small interest in the future business plus most of the War reparations on the factory, which it proceeded to reconstruct. Simultaneously, other Corn agents were in Germany, dickering for the purchase of four small factories. The owner of one of these was an ex-German army captain named Pauli, and cinematic though it may sound it turned out that he had led the wrecking crew that had demolished the Haubourdin plant during the war. Being in the business himself he had known what to attack and what to leave alone in a corn refinery, and he had done an exceptionally thorough job. Corn Products tacked a perfect O. Henry snapper onto the end of this yarn by hiring Pauli and putting him to work on the French repair job.

Whatever melodrama there may be in Corn Products definitely centers around the foreign business, and especially around the company's operations in the Third Reich. There the prices of corn and finished products are mostly regulated to the last pfennig by the government, but Corn manages to turn a nice profit—how much it won't tell. It also manages, through some complicated understanding with Wilhelmstrasse, to get profits out of the country. True, Corn does not get any cash directly from Germany, but neither does it have to accept harmonicas or canaries in lieu of money. On occasion it buys German cornrefining machinery at a low price for export and installation in other foreign plants. Recently it has been bartering Argentine or American corn for starch produced in the German plant, securing the starch at cost or thereabouts, and shipping it to the Manchester factory or wherever it can sell it most profitably. The details of this arrangement are purposefully left vague, but apparently the German operations account for a good part of the $475,000 that is identified on the company's books as "profits on merchandise transfers between foreign subsidiaries."

As a matter of fact, Corn has always been an industrial favorite in Germany. The big 5,000,000-bushel-a-year plant it built at Barby in 1923 to replace the four small refineries was one of the most important pieces of industrial construction to be undertaken after the war, and with a sensitive diplomatic instinct Corn has managed to preserve this good initial impression ever since. For example, potatoes are an abundant German crop whereas corn must be imported, and Corn genuflects to the ideal of national self-sufficiency by operating—as it has for a number of years—several potato-starch factories. Meanwhile it tries to popularize corn with German farmers, developing new seed adapted to the soil and climate, and operating a number of experimental corn farms.

Corn has at least a 55 per cent interest in each of its foreign companies, and more nearly 100 per cent in most. But regardless of the interest and regardless of whether the company exists in a democracy or a dictatorship Corn keeps very much under cover and does not stress the fact that the subsidiaries are anything but indigenous. Indeed, the subsidiaries are so permeated with the cultures and ambitions of the nations in which they operate that Corn doubts whether even a general war would wipe them out. It doesn't want a war, naturally, but President Moffett thinks that the foreign business could survive one. "In case of war," he blandly observes, "we will be on both sides of the fence." Meaning that for obvious business and political reasons Corn Products in Barby will shout "Gott strafe England" just as loudly as Corn Products in Manchester will deplore the Hun.

If it had any choice in the matter Corn undoubtedly would find it preferable to do its processing entirely within the United States for export rather than maintain the network of subsidiaries. The overseas grinding capacity is now nearly double the 11,ooo,ooo-bushel exports in the peak year 1922, but whether it is proportionately more or less profitable than the domestic is impossible to tell. In the first place Corn refuses to state its precise interest in the subsidiaries, and in the second it does its best to obscure the size and sources of its profits from abroad. Thus the annual statements merely list an item headed: "Income from subsidiary and affiliated companies"—which of course includes domestic as well as foreign affiliates. The third and heaviest veil surrounding the mystery is Corn's policy of not taking maximum dividends from all its foreign companies every year, but rather using them as a cushion against bad times in America. In other words, during a year when the U.S. business looks favorable, Corn, as majority stockholder in the foreign subsidiaries, is apt to take moderate dividends, while in a poor American year it will draw more heavily on the foreign companies. For example, in the bad U.S. year 1935 Corn had a net operating profit of $2,300,000 at home and took $5,000,000 from its affiliates—mostly foreign; in 1936, a good domestic year, Corn's U.S. net operating profit was $7,750,000, and it drew only $3,000,000 from affiliates; while last year, which was poor in America, the company's operating net was $1,800,000 here and it collected $5,300,000 from its affiliates, of which about $4,000,000 came from abroad.

The process

Virtually all of Corn's foreign business is in bulk starches, sirups, sugar, etc., and only a tiny fraction in branded items sold at retail, whereas in the U.S. Karo, Mazola, Argo, Linit, and the other branded products account for 16 per cent of the tonnage output. This is not a very large percentage, to be sure, but the profit margin on trademarked items is higher than on bulk goods and they probably contribute a good third to operating net.

Really to comprehend Corn's business it is necessary to recognize the products, and the best way to recognize the products is to see where they come from. From its shelled corn the company extracts starch, which goes mainly to the textile and paper industries, with a small amount consumed by laundries; sirup and sugar used by confectioners, bakers, brewers, canners, tobacco curers, and by the rayon and tanning industries; dextrins, employed as textile and paper sizing, in foundry work, and in the manufacture of ink, mucilage, adhesives, and fireworks; byproducts, including cattle feed, corn molasses, and the like. Of course, if you have sufficient knowledge of the difficult chemistry of carbohydrates you may be able to appreciate the difference between a crude mill starch fit for the paper industry and a "thin boiling starch" suitable for the home washtub or commercial laundries. Likewise you can tell that a brewer and a jelly-roll manufacturer are not going to buy the same kind of corn sirup. In other words, if you are very technical you can argue that literally hundreds of different products are extracted from corn, since a good many customers make individual specifications. However, for the purposes of this article it is sufficient to say that the company breaks up its corn into five basic components, and that it loses very little in the process. Allowing for a 17 per cent moisture content, a bushel of shelled corn yields approximately the following:

Starch ….. 30 lbs. 7 oz.

Gluten .......4 lbs. 3 oz.

Oil .............. 1 lb. 10 oz.

Soluble (proteins, salts that cannot be filtered but are recovered by evaporation)…. 3 lbs. 2 oz.

Miscellaneous (hull fibers and dry residue from the oil pressing) .... 6 lbs. 5 oz.

Traces of these substances are of course present in every kernel, and by referring back to the diagram on page 54 it will be seen that the kernel consists of an outer, fibrous hull surrounding a starchy and glutenous endosperm, which in turn surrounds the oil bearing germ. Now the industry speaks of the "grind" in connection with plant capacity, and "grind" suggests a dry process. Actually, in refining corn the grain is soaked as soon as it leaves the storage elevators, and it is kept wet during most of the process. First it goes to big steeping tanks filled with warm water and sulfur dioxide to arrest fermentation. After a day and a half the softened corn is run through attrition mills which tear the kernels apart, and the resulting mass enters other tanks where the oil-bearing corn germ, having the lowest specific gravity, floats free of the hull and endosperm. After drying, the germ goes directly to the oil expellers, and when the crude is refined, filtered, and sterilized it emerges presently as Mazola, with the leftover oil cake going into feed.

A second milling separates the hull from the endosperm, and since the hull content is promptly dried and ground for feed you now begin to break down the endosperm into starch and gluten. First the endosperm is freed of hull fibers and poured into long, slightly inclined troughs where the starch sinks to the bottom and solidifies into a thick white cake while the gluten passes over it and is drawn off for a condensing and filtering process which converts it—monotonously enough—into feed. The germ and hull separation was in the nature of prospecting; with the starch and gluten in the settling troughs you begin to strike pay dirt, and when the starch alone is left you have pure gold. For starch is not only an important product by itself, but the base of the sirups and sugar and dextrins. Flushed out of the troughs it is first filtered, then part is dried and milled for the market while another part goes in water suspension to the sugarhouse. There the starch undergoes dramatic treatment. Pumped into big bronze tanks it is subjected to heat and pressure, and, in the presence of hydrochloric acid it is digested in a manner not merely similar but identical to the way it would be handled by the human stomach. Twenty-two minutes in the converting tanks turns the starch solution into a liquor which when filtered, refined, and evaporated is glucose, or corn sirup, or Corn Sirup Unmixed, as the trade calls it, or C.S.U., as it is abbreviated at Argo. Mixed in the proportion of nine parts corn to one part cane sirup it forms Karo, while bulk glucose is sold to other sirup mixers, confectioners, and preservers.

The longer the starch water remains in the digestive tanks the higher the percentage of dextrose becomes. After thirty-five minutes at a certain temperature and under certain pressure, corn sugar with a 70 and 80 per cent dextrose content is produced. This product is marketed in lump form mainly to caramel coloring manufacturers and tanners, who find it useful in curing leather. But the aristocrat of corn sugars is Corn's trademarked Cerelose, nearly 100 per cent pure dextrose. Pure dextrose is described by the medical profession as "the most intimate sugar of metabolism" because it is absorbed directly into the blood stream without any digestive modification. Cerelose is manufactured under a patented process (there is one licensee and one alleged infringer) and represents Corn Products' greatest chemical triumph.

Up until 1922 pure dextrose was a commercial impossibility because no way had been found to expel the corn molasses that impaired the quality and flavor of the product. Part of the process of refining cane sugar is a whirl in centrifugals, but this method could not be used because the dextrose crystals were so fine and closely interlaced that the molasses could not get out. But in 1922 a Corn Products chemist named W. B. Newkirk made an ingenious discovery. He found that is was possible to form coarse dextrose crystals that would permit the mechanical expulsion of molasses, and the ultimate result of his experiment is Cerelose, which sells in bulk for a penny a pound less than sugar and accounts for 12 per cent of Corn's total tonnage.

Cerelose is only two-thirds as sweet as sucrose, and the company has no illusions about its becoming a serious competitor of cane sugar for household use very soon; indeed, cane sugar is even served in the cafeteria of the Argo plant. So far as the retail trade is concerned Cerelose is still a curiosity, and most people seem to think of it as a medicine. You can buy it in drugstores, packed in a tin box, at the outrageous price of sixty cents per pound, but it has yet to enter the shelves of the corner A &: P. Likely it never will, for its lesser sweetness puts it at a disadvantage with the average consumer. However, this retail minus sometimes becomes an industrial plus, for in certain food and drink industries it is a positive advantage to use a sugar that is not so sweet as cane. Corn Products sells half of its Cerelose to the baking industry, and small percentages to confectioners, soft-drink manufacturers, ice-cream makers, etc., and supports a highly developed research and merchandising staff which spends all of its time trying to open up new markets for the product.

So much for the manner in which Corn annually gets its 189,500 tons of package and commercial starch, 308,500 tons of sugars and sirups, 266,000 tons of feed, 24,000 of oil, and 42,000 of dextrins and miscellaneous products. By the time a bushel of sixty-cent corn has gone through the factory it has about doubled in value, as nearly as can be calculated on the basis of existing prices. But in arriving at that value, or any other, a lot of arithmetic is necessary. For example, if you try to set a price on a pound of starch, you have to take into consideration not only your corn, production, and overhead expenses, but you must deduct from the apparent cost the revenue from all the other parts of the grain and somehow consolidate matters so that you make a profit not necessarily on your pound of starch but certainly on your bushel of corn. At least you don't have to worry much about waste, for 98 per cent of the corn that is swept out of the freight cars at one end of the plant emerges as salable material at the other. Which introduces the important fact of the economy of the process. An example of this economy is found in the reusing of the waste water from the various separation and washing processes. Formerly this water was simply discharged as waste, and at Argo, on the Chicago Drainage Canal, it created quite a pollution problem, requiring for oxidation as much pure water as would be consumed by a city of a quarter of a million. Today the effluent from the Argo plant is down almost to zero, and the solubles recovered from the waste water evaporated with exhaust steam from other processes, incidentally-account for about 2 per cent of the feed tonnage.

Problems: the price of corn

In view of the relative stability of Corn's U.S. gross sales—$65,000,000 in 1936, and $68,000,000 last year, for example—the company's net operating profits show some spectacular changes. For these two years the profits were, respectively, $7,750,000 and $1,800,000, the variations being accounted for largely by fluctuations in corn prices. Corn averaged out over a period of years represents 60 per cent of the company's total cost of production but in specific years it may be higher or lower. The dearer it becomes the lower Corn's profits are certain to be. This is abundantly obvious when you compare the profits above with the seventy-seven cents per bushel average that Corn paid in 1936, and the $1.01 last year.

The company would like to be able to buy all its corn for seventy cents a bushel, or less, but of course it is unable to do anything about higher prices. For a long time all the corn for the U.S. plants has been bought in the spot market on the Chicago Board of Trade by a firm of grain brokers that has become a Corn affiliate in all but a financial sense. Corn's own storage facilities are so limited that the purchasing is usually done on a day-to-day or week-to-week basis, and about the most important part of the purchasing job is seeing that the grain comes from the right places. Not because there is a noticeable difference between Minnesota corn and Texas corn, but because of the "milling in transit" freight rate which works out in somewhat the same way as the stopover privilege on a passenger ticket. To wit, if Corn buys three carloads from Mason City, Iowa, for processing at Argo intermediately and shipment to New York eventually it gets a much better rate than if it bought the same amount of corn from Buffalo. The buying is usually done through a member of the Board of Trade who represents small country elevators, mainly cooperative, to which farmers bring their corn and have it shelled, weighed, and stored until it is shipped on order.

Corn Products' customers' orders all pass through a sales department in New York which has one division for packaged products and another for the bulk trade. The orders are tabulated, and once a week a so-called "grind order" is made up. Each plant manager is then told how many bushels of corn his factory must process in the following week and the number of tons of starch, sugar, sirup, and other products he must ship. Corn allows the usual discounts on large shipments, but it gets no standing orders, although it can anticipate the requirements of many of its customers.

On the basis of the grind order tabulation Corn estimates its grain needs and transmits orders to the Chicago brokers. The movement of corn is rapid and continuous, and generally only about a week elapses between the purchase on the Board of Trade and the shipment of the finished yield of the purchase from the factory. It is almost unnecessary to add that besides trying to get the best possible price on spot corn the company constantly worries about future crop prospects. Tension increases from early spring until July, when the Department of Agriculture makes its forecasts, and remains at a jittery level until October, when the new crop comes into the market and fully acts on prices. If a short crop is forecast, or if prices remain at an unprofitable level for a considerable time, Corn attempts to protect itself by an upward revision of its own prices. Karo, Kre-Mel dessert, Linit, Argo, and the other branded items carry a high enough margin of profit to absorb minor corn fluctuations, but not so the bulk products. Feed, for example, must be priced to meet the competition of other types of this product, dextrose has to sell about a cent a pound under cane sugar to compete with it at all, and corn sirup is also tied, though less tightly, to cane prices. So there is a large chunk of Corn's business that is exceedingly vulnerable to the acts of God and Henry Wallace, both of whom from time to time have given the company some bad moments.

...and tapioca

Most of the time the corn-refining industry is confidently masculine until it gets onto the subject of the Tapioca Menace and then it becomes as fluttery as an old maid who is always seeing a man under the bed. The man in this case being the 466,000,000 pounds of tapioca that the U.S. imported last year, mostly from the Dutch East Indies—an increase of more than 300,000,000 pounds over the imports in 1932. Tapioca men say that about a fifth of the tapioca goes into food, principally pudding, that glues used in the veneer and plywood industries consume some 30 per cent, and that when you sift out all the other uses of tapioca you find only 20 per cent competing with cornstarch. The corn men claim that 80 per cent is closer. Total tapioca imports, they argue, are equivalent to nearly 14,000,000 bushels of corn which would take 460,000 acres to produce, and they estimate that if the tapioca imports were stopped, cornstarch could take their place and a $1,600,000 payroll rise would follow in the corn-refining industry. Tapioca has entered the country duty-free since 1883 and for some uses it makes considerably cheaper starch than corn does. So the corn industry views with alarm and beseeches Washington to "do something"—although the refiners are not above mixing tapioca glucose with corn sirup when corn prices stay too high too long. But the tapioca importers point out that imports are off 50 per cent this year anyway, and that so far as national welfare arguments go they too support a substantial processing industry. So the controversy wears on with a notable lack of humor, as witness this terrific finale of one tapioca man's brief to the government: "On what corn have these, our wet millers, fed that they have grown so rapacious as to ask the government of the U.S. to enrich them at the expense of other citizens?"

Most of the anti-tapioca agitation comes from the A. E. Staley Manufacturing Co. and American Maize-Products Co., rather than from Corn, for Corn is in the awkward position of being a renegade on the issue. In their petitions for a tapioca tariff the corn refiners wail that they have lost their foreign businesses owing to tariffs abroad, but Corn obviously can make no such complaint. More important, and far more reprehensible to the industry is Corn's possession of a 6,5oo-acre tapioca plantation in Santo Domingo. This has been by all odds the least fortunate of the foreign properties, though President Moffett, who takes full responsibility, considers it a good hedge against high corn prices and a handy thing to own in case tapioca becomes a really important starch source. At any rate the plantation was bought and put into cultivation in 1930. During the first year heavy rains washed away part of the plantation and then there was a plague of large, unpleasant green worms. Swarms of wasps were loosed on the worms, but the worms continued to do a good deal of damage. Between rains and worms Corn brought in only piddling amounts of tapioca from Santo Domingo in 1933 and 1934. Drought reduced the crops still further in 1935 and 1936, but now the company hopes that its problems have been solved. Corn may someday become an important producer and user of tapioca, for it is the only company in the industry with an adequately equipped plant on the eastern seaboard.

Candy is delicious

Like the building up of the foreign business during the years when it could be built up the tapioca venture is a good illustration of Corn's ability to recognize and follow the main chance, and another illustration of this same ability is the way that Corn set about finding a better market for the pure dextrose sugar that is its pride. Cerelose ("The Sugar That Is Just Sweet Enough," Corn advertises) is only two-thirds as sweet as sucrose, remember, and it will probably never gain wide acceptance for household use. But Corn started a drive to put the word dextrose into the common man's vocabulary through the medium of five-cent candy bars. Some four years ago the company approached a New England candy manufacturer and sold him the idea of putting out a new nickel bar made principally of dextrose sugar. Corn Products' dextrose specialists produced the formula for this confection, and Corn Products itself designed and paid for the advertising, which naturally harped on the quick energy and general healthfulness of dextrose. The New England business was small, however, and in 1936 Corn Products went to the head of the Curtiss Candy Co. and suggested that there would be mutual benefits if dextrose were to be included in the formula of Baby Ruth and if Baby Ruth's label and advertising boasted of it. In time this came to pass, and now Corn Products sells Curtiss around 2,000,000 pounds of dextrose annually, getting direct and indirect benefits from Baby Ruth's slogan that it is "Rich In Dextrose, The Sugar You Need For Energy," while Curtiss has enjoyed a distinct improvement in Baby Ruth's sales.

For a good many years Corn has been making occasional friendly gestures toward the confectioners, since the candy industry has always been an excellent customer for glucose. The gestures have mainly been in the form of cooperation with various candy promotion campaigns, and Corn has gone so far as to mount candy slogans in electric lights on top of the Edgewater plant. But early this year the company made a gesture which came close to putting it in partnership with the confectioners. The candy men, represented by the National Confectioners' Association, decided in January to launch a campaign built around the slogan "Candy Is Delicious Food." Corn Products, of course, had been trying to establish the food value of dextrose for a long time, and it couldn't have coined a neater phrase itself. So it jumped into the campaign and soon "Candy Is Delicious Food" gleamed by night across the Hudson from Edgewater to Manhattan's Riverside Drive. By day Corn distributed up and down and across the U.S. millions of "Candy Is Delicious Food-Eat Some Every Day" stickers. Then it offered to subsidize for the Confectioners' Association a pretentious something called "The Educational Bureau." This was, of course, nothing more than a hardboiled, high-powered publicity department, and one of the first things it did after Corn Products set it up was to file a $500,000 suit against Twentieth-Century Fox because of a slurring remark about candy bars made by a character in the Shirley Temple picture Rebecca of Sunnybrook Farm. This backhanded attack on America's Sweetheart at once shot onto the front pages. Shirley after a time let it be known that she just loved candy bars, and Shirley's mother said she too liked them. This disarmed the candy men and they agreed to drop the suit, issuing to the motion-picture industry a stern warning never to let this happen again.

But in spite of these goings on Corn's attitude is somewhat defensive when it comes to corn sugars and sirups. It takes no oldest inhabitant to remember when Dr. Harvey Wiley fought to have corn sirup labeled "glucose" a nasty word to Americans. And up until 1930 corn sugar was likewise suspect, and certain foods containing it required labeling. Today dextrose is considered respectable by the federal government, but a number of states still carry the old restrictions on their books, and public confidence in the product is certainly not all it might be. But sugar represents perhaps the most hopeful part of Corn Products' future, for dextrose sales have risen from 54,000,000 pounds in 1925 to 200,000,000 pounds last year, with three more years of protected manufacturing before the first patents on the crystallizing process expire in 1941. Meanwhile Corn permits the competing American Maize-Products Co. to produce Cerelose under license, and for a year it has been carrying on expensive litigation with Penick & Ford, which allegedly infringed the process from 1925 to 1936. So far Corn Products has beaten Penick & Ford in every court, and it hopes that a decision by the U.S. Supreme Court will result in damages sufficient to more than balance the legal expenses incurred to date.

Heil!

Whether you agree with him or not, George Monroe Moffett, a son of one of the original Standard Oil founders of Corn Products and President of the company since 1931, is worth listening to. He is well informed on the subject of agriculture, for example, because it is part of his job to keep as nearly abreast of Henry '''Tall ace as possible, and because he is a competent and enthusiastic farmer in his own right. Mr. Moffett owns a large stock farm on the Eastern Shore of Maryland, and a couple of years ago he decided to spend more time farming, less in Corn's offices. Over the protests of the other executives, who swore that he was worth just as much to the company in Maryland as he was in New York, he insisted on a heavy salary cut, from $112,500 to $75,000 in 1934, and to $50,000 last year. But Mr. Moffett didn't have to do much belt tightening, for among other things he holds 500 shares of Corn's $7 preferred stock and nearly 50,000 shares of $3 common.

Mr. Moffett can also discuss art if the occasion arises. He has a keen esthetic appreciation, and when he goes to Europe he frequently travels far out of his way to view a favorite triptych of his at Bruges. At home he admires the paintings of Grant Wood, and has Wood's Dinner for Threshers hanging in the Maryland establishment. But Mr. Moffett is most interesting when it comes to world politics, for he is in a peculiarly advantageous position to form logical opinions about the great ideological warfare being waged today. Specifically, the conflict between democracy and fascism. With one going business in the greatest democracy and another in the most dynamic fascist dictatorship Mr. Moffett can speak as a participant as well as a philosopher.

In effect he says that personally he is opposed to Nazism. As a businessman, and particularly as a production man, he would much prefer having no restrictions whatever on his activities. But since government everywhere steadily encroaches on individual and business freedom he is resigned to being restricted, and from there he goes on to make a choice between the kind of restriction in Nazi Germany versus the kind of restriction in New Deal America. There is, of course, little basis for comparison, although the choice presumably can be made. In Germany the brownshirts tell Mr. Moffett how much corn he may process in a year, what price he must pay for the corn, where it must come from, what must be made from it, where and at what prices its yield must be sold. To most American businessmen that would be intolerable, but Mr. Moffett argues that there are compensations. In Germany, he says, there is no "uncertainty," no "political caprice," and "no nonsense." You reach an agreement with the government and it sticks. You have a problem and you go to the government and get a clear, immediate answer, whereas in America you may spend weeks trying to find out where you stand with the New Deal and then just as you seem to have reached an understanding there is an overnight change in policy and you are up in the air again. In addition, with such things as the AAA, the Wagner Act, the NLRB, and Congress there is continually the threat of change. All in all, Mr. Moffett prefers the tangible, explicit Nazi interference to the half-defined meddling of democracy.

Again, as a production man he is unmistakably grateful for the absence of labor trouble in Germany. He can hardly be unaware that such tranquillity is part of an equation involving Storm Troopers and barbed wire and concentration camps; but by his own utterances one is obliged to conclude that Mr. Moffett overlooks the means when he speaks well of the end.

In America, Corn Products is a decent and scrupulous employer paying better than average wages and trying through paid vacations, fairly continuous employment, pensions, and insurance to grant some security to its workers. It is also an aggressively friendly employer. When the plant managers stride through the Corn plants their right hands jerk up and down in an automatic gesture of salute to anyone who happens to be around, and there are frequent halts for chats with the men and the usual queries about their families. Out at Corn Products' plant at Argo, Illinois, Manager Bill Brady sits in an office giving on the barren, dusty avenue between the factory buildings and for an hour or so in the afternoon does little but wave to everyone who passes: Bill is a quick, taut young man with reddish hair, a thin mustache, and a smile that flashes on and off' like a traffic blinker. He puts a lot of effort into fostering the bonhomie between management and men, and this part of his job is probably harder than it was for his predecessors. For Argo is considered to be one of the most highly mechanized plants in the U.S., and since 1932 it has been under the Bedaux System. So the emissaries of the C.I.O. stand at the gates and hand out copies of the Argo Weekly, which utters the mimeographed shout: "THE BEDAUX-MUST GO!"

The earnings

Although there is in America an SEC that pries, and a labor movement that threatens, and a Secretary Wallace who considers seventy-five-cent corn more important than the untrammeled working of the law of supply and demand, Corn Products seems to get along quite nicely in this still relatively free economy. Except for temporary losses in a few months—including the third quarter of 1937—the company has enjoyed continuously profitable operations since the merger with the Glucose Trust in 1906. Not only that, it controls now as it did then by far the largest fraction of the industry's total business, and there is no reason to think that any of the four major competitors sharing the remainder will ever seriously challenge it. The A. E. Staley Manufacturing Co., with the second, largest grinding capacity in the country, showed a $70,000 deficit last year after a 1936 profit of $1,500,000, and Penick & Ford made $270,000 on sales of about $15,000,000. The latter company has branded products like My-T-Fine dessert, and Penick Syrup and Salad Oil which are well advertised and compete vigorously with Karo, Mazola, and Kre-Mel dessert, but Corn finds this rivalry more stimulating than dangerous. And it is a case of the rich getting richer, for while Corn is able to operate its foreign plants behind tariff walls the other companies are almost entirely shut out of the export market. Every time a major foreign country boosts its tariffs on starch or glucose imports Corn Products benefits, and the fact that its overseas business has been increasing at the rate of 10 per cent a year for the last three years is a direct reflection of tariff trends the world over.

The best evidence of the stability of Corn's sales through good times and bad is the grind, and in a decade this has shown a variation of only about 10,000,000 bushels, from a 1928 top of about 40,000,000 bushels to a 1935 low of a little under 30,000,000. Although net operating profits fluctuate wildly with corn prices, dividends from investments and foreign and domestic affiliates have been used as shock absorbers so that the company's total net earnings have stayed within a fairly narrow range. During the early twenties the annual net income stayed pretty consistently at or slightly above the $10,000,000 level, rising to an all-time high of $15,650,000 in 1929. It then dropped to $8,750,000 in 1932, recovered to $11,500,000 in 1933, and finally declined to $8,100,000 in 1937—a year in which dollar corn drove the net operating profit down to only $1,780,000. So far 1938 appears to be excellent, for since the first of the year corn has cost only fifty-six cents per bushel on the average, and while prices at Chicago are currently higher than this they are not apt to rise very much. So it is quite possible that Corn will end 1938 with a strong net operating profit of $7,000,000 or $8,000,000, and this, added to the other foreign and domestic income, should make a total net of around $11,000,000.

One large item in this "other" income is a portfolio of securities carried at a market value of $14,800,000, which last year yielded Corn about $1,000,000. This was accumulated during the twenties by E. T. Bedford, who thought of it as a sort of reserve to meet the $1,750,000 annual 7 per cent dividends on 250,000 outstanding shares of $100 preferred stock. During the latter part of the Bedford regime the securities were carried at cost, giving the portfolio a value under the market, and prior to 1930 the yield ran considerably ahead of the preferred requirements. The company continued carrying the portfolio at cost until 1935, but long before then it had lost much of its value, so that the statements showed current assets with several millions that were purely fictitious. This was pointed out by the statements but it caused a good deal of unfavorable comment, and in 1935 the company undertook a restatement of the portfolio to market values—a write-down of $8,100,000, which was offset by a $2,000,000 dip into surplus, by shifting, on the decision of the SEC, certain properties that Corn had carried as "other investments" into the marketable-securities account for a gain of $4,700,000, and by an adjustment of an existing market-depreciation reserve. Surplus recovered $2,000,000 following the 1936 appreciation in securities prices, but last year it lost over $5,000,000 when the portfolio's value declined to $14,800,000. Surplus today stands at a little over $15,000,000.

The preferred stock is not callable, and the company made only one move to reduce it when in 1921 it retired $5,000,000 worth of shares, which it had bought back at less than $100. The full $7 dividends have been paid continuously since 1906, save for a period between 1908-16 when President Bedford insisted on shaving them to $5, paying up the accruals in 1917. The highest dividend ever paid on the $25 par common, of which 2,500,000 shares are outstanding and 3,000,000 authorized, was $4,25 in 1930, with $3 being considered the regular base. In the last three years the company has made disbursements of $32,800,000 to preferred and common shareholders, compared with total net income of $29,000,000 for the period. It is doubtful whether old Mr. Bedford would have countenanced such a thing, for he never let dividends exceed income save in 1925, when a couple of hundred thousand dollars more went out than came in. But Corn felt that the payments were justified by its excellent volume of business at home and abroad and it is confident that the present corn-crop outlook assures much better profits at least this year and next.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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