Kraft, Mondelēz in hot seat over alleged wheat price manipulation

by Ron Sterk
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The companies have been accused of allegedly manipulating futures and cash wheat prices.

WASHINGTON — The U.S. Commodity Futures Trading Commission on April 1 filed a civil enforcement complaint in the U.S. District Court for the Northern District of Illinois against Kraft Foods Group, Inc. and Mondelēz Global L.L.C., alleging manipulation and attempted manipulation of futures and cash wheat prices, exceeding speculative position limits in Chicago Board of Trade wheat futures, and engaging in numerous noncompetitive trades in C.B.O.T. wheat.

The C.F.T.C. is seeking a permanent injunction from future violations of federal commodities laws, disgorgement and civil monetary penalties in its litigation against Kraft and Mondelēz.

The C.F.T.C. alleges that, in response to high cash wheat prices, Kraft and Mondelēz developed, approved and executed in early December 2011 a strategy to buy $90 million of December 2011 wheat futures, equal to a six-month supply of wheat. The C.F.T.C. alleges neither company intended to take delivery of the wheat but executed the strategy “expecting the market would react to their enormous long position by lowering cash wheat prices and strengthening the spread between December 2011 wheat and March 2012 wheat futures.” Those price moves occurred and the C.F.T.C. said the companies made more than $5.4 million in profits as a result.

The C.F.T.C. also alleges that on five dates in early December 2011, Kraft and Mondelēz held long positions in December 2011 wheat futures that exceeded the C.B.O.T.’s 600-contract speculative spot month position limit by as much as 2,110 contracts without having a valid hedge exemption in place or a bona fide need for that amount of wheat.

Finally, the C.F.T.C. alleges that beginning around 2003 and continuing through January 2014, prior to each of the five annual delivery periods for C.B.O.T. wheat futures, Kraft and Mondelēz conducted off-exchange futures transactions between two separate corporate trading accounts that did not comply with exchange rules for noncompetitive, off-exchange futures trades.

In a statement filed April 1 with the Securities and Exchange Commission, Kraft Foods said, “On April 1, 2015, the Commodity Futures Trading Commission filed a formal complaint against Mondelēz International, Inc. and the registrant related to activities involving the trading of December 2011 wheat futures contracts. As previously disclosed, these activities arose prior to our Oct. 1, 2012, spin-off from Mondelēz International and involve the business now owned and operated by Mondelēz International or its affiliates.

“Our Separation and Distribution Agreement with Mondelēz International dated as of Sept. 27, 2012, governs the allocation of liabilities between Mondelēz International and us and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the C.F.T.C. may impose. We do not expect this matter to have a material adverse effect on our financial condition, results of operations or business, including our proposed merger with H.J. Heinz Holding Corp.”
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