Dive Brief:
- A lawsuit alleging that Kraft manipulated the wheat market has been permitted to move forward by U.S. District Judge John Robert Blakey. Mondelez is also named in the lawsuit, but Blakey clarified that Kraft was at the helm "during the relevant time period."
- The U.S. Commodity Futures Trading Commission (CFTC) claims that Kraft illegally drove down wheat prices back in 2011 by buying up much more wheat futures contracts than the company could have possibly used, making $5.4 million in profit in the process.
- Blakey said the CFTC's allegations were "sufficient to allege that Kraft intended to manipulate the wheat markets" and that "at the very least, they show that Kraft engaged in reckless conduct against the markets."
Dive Insight:
The CFTC alleged that Kraft spent $90 million on wheat futures for what equated to a six-month supply, though the company normally only holds about two months' inventory at a time. That large purchase allegedly sent a misleading market signal that made it appear that Kraft wouldn't need to purchase as much wheat on the cash market, which sent the cash price of wheat down. Kraft was then able to close out its futures position and turn a profit, according to the CFTC's claim.
According to Blakey's ruling, Kraft's alleged intent was that "the market would believe that, because Kraft — one of the largest end users of commercial wheat — had satisfied its demand for wheat through the futures market, there was significantly less demand for wheat in the cash market."
Others believe that Kraft is being "singled out for behavior that every trader does every day" — behavior that is supposed to be anonymous on the futures market, which makes it unclear how the CFTC could have known the source of the $90 million wheat futures purchase, Michael Friedman, chief compliance officer with Trillium, told Chicago Tribune.
Kraft has not responded to the ruling but is expected to speak out against the allegations.