Feds Say Kraft Gamed Wheat Market for $5M

CHICAGO (CN) - The Commodity Futures Trading Commission accused Kraft Foods and snack food giant Mondelez Global of manipulating the price of wheat futures in 2011 to reap $5.4 million in illicit profits.

In a federal complaint Wednesday, the CFTC claims that Kraft and its snack-foods affiliate Mondelez Global engaged in a series of noncompetitive commodity trades between 2009 and January 2014 by participating on both sides of an exchange-for-physical Chicago Board of Trade wheat contract.

Kraft Foods, one of the largest packaged-food companies in the world, spun Mondelez off in 2012 after the actions described in the complaint. Mondelez now manages Kraft's snack food arm, including brands such as Oreos, Triscuits, Wheat Thins and Chips Ahoy.

Federal regulators also claim that in addition to gaming wheat futures prices, Kraft held wheat futures positions "in excess of speculative position limits established by the Commission."

Kraft consumes approximately 30 million bushels of wheat per year, according to the complaint.

In 2011, the price of wheat futures increased substantially from $6.57 to $7.97.

In response, "Kraft's wheat procurement staff proposed to Kraft senior management that Kraft adopt a strategy of buying $90 million of December 2011 wheat futures in early December 2011 in order the depress the price of wheat in the cash market and inflate the futures price of wheat," the CFTC says.

The agency says Kraft had no need for the wheat, no intention of collecting it, and no capacity to store such a huge quantity.

Rather, the company profited by purchasing wheat at a cheaper price in the cash market, then reselling its shipping certificates at a higher price, earning a profit of over $5.4 million, the complaint says.

The commission seeks an injunction prohibiting Kraft from further manipulation of the futures market, and to impose a penalty of triple Kraft's monetary gain.

The complaint was filed by Jennifer Smiley of the agency's division of enforcement.

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