RiskFinancial CrimeUS Food Giants Accused of Manipulating Wheat Market

US Food Giants Accused of Manipulating Wheat Market

Food multinationals Kraft Foods and former parent Mondelez Global face allegations from the US commodities regulator that they made a US$5.4m profit in 2011 from manipulating wheat prices.

The US Commodity Futures Trading Commission (CFTC) issued a lawsuit accusing both companies of attempting to artificially lower the price of physical wheat by buying large amounts of futures contracts. Kraft and Mondelez were subsequently separated in 2012 following a spinoff of North American grocery operations to shareholders.

The alleged action has been likened to the efforts by some banks to manipulate the London Interbank Offered Rate, aka Libor, which resulted in substantial fines being imposed on Barclays, UBS and others.

Wheat prices spiked in the summer 2011 following drought damage to crops in Russia, Europe and China. According to the CFTC, Kraft uses around 30m bushels of wheat annually to manufacture its various products, including biscuits and crackers.

The regulator believes that Kraft’s wheat traders devised a plan in which the company would heavily buy December-dated wheat futures contracts, signalling to other traders that food companies and other grain processors intended to acquire large quantities of wheat near the end of that year.

In response, according to the CFTC, the price for Kraft to buy physical wheat prior to December would decline, as grain companies that supply crops directly to food makers could have been led to believe that Kraft didn’t require as much grain immediately.

“Kraft executed its plan, and the market reacted as Kraft expected, yielding Kraft more than US$5.4m in futures trading profits and savings from its strategy,” CFTC officials wrote in the complaint.

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