Mondelez and Kraft dismiss wheat manipulation charges

By Kacey Culliney

- Last updated on GMT

The companies say they made "reasonable business decisions" in the face of an "uncertain market"
The companies say they made "reasonable business decisions" in the face of an "uncertain market"

Related tags Commodity futures trading commission Futures contract Kraft

Mondelez International and Kraft Foods have filed a motion to dismiss fraud allegations in a wheat manipulation case brought forward by the US Commodity Futures Trading Commission (CFTC).

The dismissal motion was filed yesterday in the US District Court of Northern Illinois.  

Two months ago, the CFTC charged both companies for fraud, manipulation and attempted manipulation of the prices of cash wheat and wheat futures​. Alleged misconduct took part between 2003 and 2014, but specifically relates to an alleged attempt to lower wheat prices in 2011. 

In late 2011, Kraft and Mondelez purchased less-expensive wheat futures, leading to a price drop in the cash wheat market. At this time, the companies then decided to resell remaining shipping certificates, close its open December futures position and start purchasing cash wheat at lower prices.

‘Reasonable business decisions’

However, both companies have defended actions stating they were “reasonable business decisions” ​made to “maintain a steady wheat supply in the face of an uncertain market”.

“These decisions and consequences do not transform Kraft’s conduct into a fraud or a manipulation. They are, instead, an example of a consumer of wheat ‘seeking the best price for its commodity’ – an activity the CFTC recognizes as a ‘legitimate, indeed critical price-creating force in the futures market,” ​they told the court.

Kraft and Mondelez said allegations were based on weak arguments – changes to wheat prices and excerpts from two emails. In addition, they said the allegations did not inform the court or Kraft and Mondelez of how they allegedly deceived the market.

“In short, the CFTC’s case comes down to this: when faced with higher wheat prices in one market and lower wheat prices in another, Kraft was required by law to purchase wheat in the more expensive market. According to the CFTC, to do otherwise is a fraud and a manipulation.”

Kraft-Mondelez split

In 2012, Kraft created Mondelez as a global snacks spin-off and is now focused on the North American grocery market.

Basil Maglaris, director of corporate affairs at Kraft Foods, previously said any costs relating to the charges would predominantly be dealt with by Mondelez given the wheat in question was used for snack products like cookies and crackers.

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