MEMPHIS (CN) – A 6,000-acre farm claims Cargill tried to “extort” it for $800,000, and that most of the profits the giant international conglomerate makes from its agriculture operations do not come from selling commodities, but “from the profits it realizes from market losses that its farmer clientele experience through the purchase of futures and options that Cargill promotes as tools to hedge the farmers’ risks.”
In a federal lawsuit, L&R Farms Partnership and James Lewis claim that while Cargill holds itself out as a company that makes money from selling commodities, the “overwhelming majority of defendant Cargill’s revenues are not generated from the resale of these commodities to food manufacturers but (unbeknownst to plaintiffs at the time of the transactions described herein), instead, are reaped from the profits it realizes from market losses that its farmer clientele experience through the purchase of futures and options that Cargill promotes as tools to hedge the farmers’ risks.”
The plaintiffs, who run a 6,000-acre farm in Western Tennessee, say Cargill recommends that farmers hedge the risk of future prices for their grain by buying futures and options through its corporate account on the Chicago Board of Trade.
“In doing so, Defendant Cargill represents that it [is] ‘not taking the other side of the trade’ (i.e., not acting as a counter-party to the trade) and, as such has nothing to gain from the farmers’ trade other than a commission that it charges each to conduct the trade,” the complaint states. (Parentheses in complaint.)
“Unfortunately, defendant Cargill’s representations are false. The options and futures trading that it provides to its farmer clientele are not actually conducted on the CBOT and are not executed at actual CBOT prices. Instead, defendant Cargill actually acts as the counter-party of the trades that it recommends to its farmers and sells and purchases futures and options to them at prices arbitrarily arrived at by Cargill and not necessarily executed at actual CBOT prices.”
L&R Farms says entered into three hedge contracts for the sale of 150,000 bushels of yellow soybeans in August 2009. Subsequently, L&R, with Cargill’s consent and written acknowledgement, “rolled” the delivery dates on the contracts, moving them from January to May 2011.
“However, defendant Cargill later decided it would be more profitable for it to re-nig [sic, recte: renege] on its contractual agreement to roll the HTA contracts until May 2011 and, instead, demanded payment from plaintiff L&R Farms,” for the supposed non-delivery of grain by the former specified date, the complaint states.
“Defendant Cargill, determined to extort money from plaintiffs, pretended as if its demand for adequate assurance was well founded (when it clearly was not) and further ignored plaintiffs’ efforts to advise defendant of their intent to honor the HTA contracts as rolled. Instead, defendant proceeded forward as if the HTA contracts has not been rolled and, on March 11, 2011, sent a notice to plaintiffs claiming that it was ‘canceling’ the HTA contracts for failure to deliver grain in January 2011 and that plaintiff L&R allegedly owed it $799,250.” (Parentheses in complaint.)
When the plaintiffs asked to see backup information from Cargill that would demonstrate how it arrived at the option and future prices that it claimed had been executed by the Chicago Board of Trade, Cargill refused to provide that information, the complaint states.
The plaintiffs seek compensatory damages of no less than $2 million, punitive and treble damages of not less than $20 million, costs and expenses for violations of the Tennessee Consumer Protection Act, common law fraud, and the Tennessee Declaratory Judgment Act.
They are represented by Frank Watson III with Watson Burns, of Memphis.