Risk & Compliance

Kraft Settles Futures Market Manipulation Case

The company allegedly made more than $5 million in profits and savings from improper wheat futures trading.
Matthew HellerAugust 16, 2019

After more than four years of litigation, Kraft Foods Group and Mondelēz International have agreed to a settlement of U.S. allegations that it manipulated the market for wheat futures, ultimately earning more than $5 million in illicit profits.

The case arose from alleged improper wheat futures trading at the snacks company formerly known as Kraft Foods Inc., which was renamed Mondelēz International in 2012 as part of a corporate restructuring. Kraft Foods Group merged with Heinz in 2015.

According to the Commodity Futures Trading Commission, Kraft Foods “executed a manipulative strategy” aimed at “causing the market to sell cash wheat to Kraft and Mondelēz at lower prices, while earning Kraft and Mondelēz a profit on their speculative futures positions.”

The settlement requires Kraft and Mondelēz to pay a fine of $16 million, more than three times their gain from the alleged scheme.

“Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops,” CFTC Chairman Heath P. Tarbert said in a news release. “It also hurts American families by raising the costs of putting food on the table.”

Kraft usually sources wheat supplies for its Toledo, Ohio, mill from a grain producer or wholesaler in the cash market, using the futures markets only to hedge its cash wheat purchases.

But in an enforcement action filed in April 2015, the CFTC alleged Kraft deviated from its usual practice in response to an increase in cash wheat prices in the summer of 2011. “Even though cash wheat prices were rising, there was sufficient wheat available in the cash wheat market for Kraft to purchase and deliver to the mill to satisfy Kraft’s needs,” the commission said.

Kraft, however, acquired “a huge long position” in December 2011 wheat futures, allegedly intending that the futures market would react by increasing the price of the futures contract while reducing the spread between the December futures price and the cash market wheat price.

“The market reacted as Kraft expected, yielding Kraft more than $5.4 million in futures trading profits and savings from its strategy,” the CFTC said.