Kraft charged with manipulating wheat prices by US regulator

Less than a week after its sale to Heinz, Kraft is the target of a US government lawsuit

Kraft and its former parent company Mondelez have been charged with rigging wheat markets to drive down prices, less than a week after the mac n’ cheese giant was sold to Heinz.

Both companies have been sued by US Regulator the Commodity Futures Trading Commission in a civil lawsuit for buying wheat futures, which secure a current price for a future sale.

In the summer of 2011, the price of a type of soft wheat used to make crackers was rising. Kraft and Mondelez used this wheat in its Oreo Cookies, Ritz Crackers and Wheat Thins. It was consuming 30 bushels of soft wheat a year at the time, representing 7 per cent of last year’s crop, according to Reuters.

According to the CFTC, when wheat prices drifted upwards in the summer of 2011, Kraft and Mondelez bought up $90 million of December 2011 wheat futures. This amounted to a six-month supply of wheat, or three times the amount it had the capacity to store.

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Futures allow manufacturers like Kraft to insure themselves against future price hikes. They are not supposed to be used to disrupt the marketplace.

The CFTC said that Kraft and Mondelez never intended to buy this much wheat but expected wheat producers would, with the security of a large future sale on the books, lower wheat prices. That is what happened: wheat prices fell, earning Kraft and Mondelez over $5.4 million in profits, the CFTC said.

 

“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,” said Aitan  Goelman, CFTC director of enforcement.

Kraft and Mondelez both said the case would not have a significant impact on investors.

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