By Josh Beckerman
Kraft Foods Group Inc. and Mondelez International Inc. were
charged Wednesday with manipulating and trying to manipulate the
prices of cash wheat and wheat futures by the regulator of those
markets.
The complaint from the U.S. Commodity Futures Trading Commission
accuses Kraft and Mondelez of holding wheat futures positions in
excess of speculative position limits without a valid hedge
exemption or a bona fide hedging need. The companies also were
accused of engaging in numerous noncompetitive wheat trades on the
Chicago Board of Trade.
Spokeswomen from both companies said each wouldn't comment on
active litigation. Kraft Foods Group was spun off in late 2012 from
the global snacks company now known as Mondelez International.
Kraft said in a filing Wednesday that Mondelez "will
predominantly bear the costs of this matter and any monetary
penalties or other payments that the CFTC may impose." Kraft
doesn't expect any material adverse effect on its financial
condition, results or business, including a planned merger with
H.J. Heinz Co. That deal, announced in March, is valued at roughly
$49 billion.
The CFTC was investigating trading in December 2011 wheat
contracts by a unit of what was at the time Kraft Foods and is now
Mondelez.
The companies have previously disclosed that the CFTC was
looking into their wheat-futures trading. In November, Mondelez
warned that regulators intended to start "formal action" against
Mondelez and Kraft.
The CFTC alleged that, in response to high cash wheat prices in
2011, Kraft and Mondelez had "a strategy to buy $90 million of
December 2011 wheat futures, which amounted to a six-month supply
of wheat."
The agency said in a news release that the companies didn't
intend to take delivery of the wheat, but they used the strategy
"expecting the market would react to their enormous long position
by lowering cash wheat prices and strengthening the spread between
December 2011 wheat and March 2012 wheat futures."
Those price shifts did occur, according to the CFTC Complaint,
and Kraft and Mondelez earned more than $5.4 million in
profits.
The CFTC is seeking a permanent injunction, disgorgement and
civil monetary penalties.
Write to Josh Beckerman at josh.beckerman@wsj.com
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