Kraft, Mondelez Accused of Manipulating Wheat Markets -- Update

By Josh Beckerman 

Kraft Foods Group Inc. and Mondelez International Inc. were charged Wednesday with manipulating and trying to manipulate the prices of cash wheat and wheat futures by the regulator of those markets.

The complaint from the U.S. Commodity Futures Trading Commission accuses Kraft and Mondelez of holding wheat futures positions in excess of speculative position limits without a valid hedge exemption or a bona fide hedging need. The companies also were accused of engaging in numerous noncompetitive wheat trades on the Chicago Board of Trade.

Spokeswomen from both companies said each wouldn't comment on active litigation. Kraft Foods Group was spun off in late 2012 from the global snacks company now known as Mondelez International.

Kraft said in a filing Wednesday that Mondelez "will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose." Kraft doesn't expect any material adverse effect on its financial condition, results or business, including a planned merger with H.J. Heinz Co. That deal, announced in March, is valued at roughly $49 billion.

The CFTC was investigating trading in December 2011 wheat contracts by a unit of what was at the time Kraft Foods and is now Mondelez.

The companies have previously disclosed that the CFTC was looking into their wheat-futures trading. In November, Mondelez warned that regulators intended to start "formal action" against Mondelez and Kraft.

The CFTC alleged that, in response to high cash wheat prices in 2011, Kraft and Mondelez had "a strategy to buy $90 million of December 2011 wheat futures, which amounted to a six-month supply of wheat."

The agency said in a news release that the companies didn't intend to take delivery of the wheat, but they used the 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, according to the CFTC Complaint, and Kraft and Mondelez earned more than $5.4 million in profits.

The CFTC is seeking a permanent injunction, disgorgement and civil monetary penalties.

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