On Dec. 18, U.S. District Judge John Robert Blakey rejected an attempt to dismiss a lawsuit brought by the U.S. Commodity Futures Trading Commission (CFTC) that alleges Kraft used its financial weight to lower wheat prices in 2011.
The complaint alleges Kraft Foods Group, Inc. and then-parent company Mondelēz Global LLC violated speculative position limits by holding wheat futures positions in excess of speculative position limits established by the CFTC and the Chicago Board of Trade (CBOT) without a valid hedge exemption or a bona fide hedging need, and engaged in numerous noncompetitive trades in CBOT wheat.
In late summer 2011, Kraft and Mondelēz bought $90 million of December 2011 wheat futures, which amounted to a six-month supply of wheat. The CFTC Complaint alleges Kraft and Mondelēz never intended to take delivery and instead executed a 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 shifts did occur and, according to the complaint, Kraft and Mondelēz earned over $5.4 million in profits.
The CFTC complaint also alleges that on five dates, Kraft and Mondelēz held long positions in December 2011 wheat that exceeded the CBOT’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 quantity of wheat.
Finally, the CFTC Complaint alleges that beginning in or about 2003 and continuing through January 2014, prior to each of the five annual delivery periods for CBOT wheat, 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.
Kraft did not respond to the ruling but is expected to continue to fight the case, which has yet to go to trial.
For more information, visit the CFTC report.