WASHINGTON, D.C., U.S. — Kraft and Mondelez Global LLC were ordered to pay a $16 million penalty to the U.S. Commodity Futures Trading Commission (CFTC) for manipulation of the wheat market that dates back to 2011.

The order, entered on Aug. 14 by the Honorable Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois, resolves the CFTC’s complaint alleging manipulation of the wheat market.

The CFTC alleged that Kraft and Mondelez, in response to high cash wheat prices in late summer 2011, manipulated the market to make it appear as though they had demand for, and would use, 3,000 futures contracts valued at $90 million to supply their Toledo, Ohio, U.S., mill. The mill currently has annual capacity of 31,000 cwts making it the third largest mill in North America, according to Sosland Publishing Company’s 2019 Grain & Milling Annual.

The complaint alleged that Kraft and Mondelez had no intention of sourcing wheat from the futures market, and the $90 million of wheat futures at issue far exceeded their actual sourcing needs. 

“As alleged, Kraft’s and Mondelez’s true goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, thereby causing the market to sell cash wheat to Kraft and Mondelez at lower prices, while earning Kraft and Mondelez a profit on their speculative futures positions,” the CFTC said.

The complaint further alleged that the companies’ actions caused an artificial price that ultimately earned them more than $5 million in profits.

“America is the breadbasket of the world; wheat markets are its heart,” said Heath P. Tarbert, chairman of the CFTC. “Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops. It also hurts American families by raising the costs of putting food on the table.  Instances of market manipulation are precisely the kinds of cases the CFTC was founded to pursue.”

The $16 million penalty is approximately three times the defendants’ alleged gain.  The order also enjoins Kraft and Mondelez from engaging in future violations of the manipulation, wash trade, and position limit provisions of the Commodity Exchange Act and CFTC regulations charged in the complaint.

Under terms of the order, none of the parties involved are allowed to discuss the case other than to refer to the terms of the settlement agreement or public documents filed in the case. But Mondelez took exception to certain comments made by the CFTC in its release.

“We can’t comment on the settlement per se but we strongly disagree with the CFTC’s statements, which blatantly violate and misrepresent the terms and spirit of the consent order, and will be seeking immediate relief from the court,” a Mondelez spokesman said.