MINNEAPOLIS (CN) – The Dairy Farmers of America, the largest dairy producer marketing co-op in the country, is accused of manipulating the cheese market to prop up milk prices. Plaintiffs, who describe themselves as “short-sellers in various commodity futures,” say they lost $6 million in futures contracts for fluid milk after the dairy famers “covertly” bought more than 19 million lbs. of cheese in two months.
Plaintiffs in the federal complaint are Mark Anderson and Killer Whale Holdings. They claim that the National Cheese Exchange was disbanded in 1997 after allegations of price fixing and market manipulation. Since then, cheese on the spot market has been traded in the United States only at the Chicago Mercantile Exchange.
Prices for fluid milk are set by a U.S. Department of Agriculture formula “whose primary commodity component is cheddar cheese prices,” the complaint states.
“The CME spot cheese market is a market where a few large anonymous participants – primarily large companies and cooperatives in the cheese and dairy industry – buy and sell cheese. Less than 1 percent of the cheese produced in the United States is traded on the market. The spot cheese market is known as a ‘thin market’ because it handles only a fraction of all U.S. bulk cheese transactions yet it effectively sets the market price for the majority of cheese and milk sales across the nation. As such, even minor changes in supply and demand for bulk cheese can have a dramatic impact on the market price for cheese and consequently, fluid milk and milk futures.”
The defendant is the nation’s largest producer-owned dairy marketing co-op, with more than 18,000 members in 48 states. They sold 34% of the entire U.S. milk supply in 2007 – 69.1 billion lbs. – and recorded total sales of $11.1 billion that year, the complaint states.
Plaintiffs, as short sellers, bet in 2004 that milk prices would fall. They say that in May and June 2004 the defendant “covertly purchased at least 19 million pounds of barrel cheese on the spot cheese market in an attempt to sustain the price of cheese and milk at a high level in order to further its own economic interests. … DFA had no legitimate business purpose for purchasing such large volumes of cheese in 2004 given that DFA is a producer, manufacturer, and seller of cheese and dairy products, focused on producing and marketing its own products.”
Plaintiffs say they lost more than $6 million after a margin call on their futures accounts, due to the artificially propped-up prices.
They are represented by Thomas Hatch with Robins Kaplan Miller & Ciresi.