Kraft charged for manipulating wheat prices

The US Commodity Futures Trading Commission (CFTC) has announced that it is filing charges against Kraft Foods Group and its subsidiary, Mondelēz Global LLC, in the state of Illinois, where they are both headquartered. According to a press release published on April 1, the civil enforcement complaint against the two multinational corporations is for the manipulation and attempted manipulation of both cash wheat prices and wheat futures.

Other violations of exchange rules were also found and included in the charges

The allegation contends that following a summer of high wheat prices, in December 2011, the pair orchestrated an approved strategy to purchase six months worth of stock, or in other words, $90m of wheat futures. Yet, the CFTC has found that there was never an intention for Kraft and Mondelēz to actually take the delivery, and so the bluff was executed so as to cause a market reaction to the mammoth purchase. The plan to lower the price of cash wheat and bolster the futures spread over the following three months was successful. The CFTC calculated the profit made to amount to at least $5.4m.

In addition, the CFTC claims that there have been other occasions in which Kraft and its snack foods company, Mondelēz, have influenced the wheat market by holding long positions without a valid hedge exemption or an actual requirement for the stock in question. Other violations of exchange rules were also found and included in the charges.

“This case goes to the core of the CFTC’s mission: protecting market participants and the public from manipulation and abusive practices that undermine the integrity of the derivatives markets. A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price,” the CFTC’s Director of Enforcement, Aitan Goelman, said in the statement.