Wheat futures manipulation case re-erupts into fight between food giants


A long-lasting legal battle between two major food companies, Mondelez International (NASDAQ: MDLZ) and Kraft Heinz (NASDAQ: KHC), going up against a prominent U.S. market regulatory resulted in a fresh round of drama just hours after the case had been formally concluded by a federal judge.

The Commodity Futures Trading Commission demanded a $16 million penalty from Mondelez over allegations that the company alongside Kraft had been manipulating the U.S. wheat futures market when they were a single company back in 2011.

While the commission ended up agreed to an unusual condition that stated the companies wouldn’t publicly comment on the case, both companies ended up violating this agreement almost immediately, promising that they would return to court to contest the ruling as soon as possible to contest the way the regulator announced the deal.

“America is the breadbasket of the world; wheat markets are its heart. Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops,” Heath Tarbert, CFTC chairman in announcing the $16 million penalty. “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,” each company said in separate statements according to the Financial Times.

The CFTC accused both companies of distorting the price of wheat futures, a claim that has been made against the two firms before back in 2011 when the two companies were still together. The case in question involved an obscure relationship between the price of Chicago’s red winter wheat futures market and the price for physical wheat that the companies bought to supply a company flour mill in Ohio. The claim from the CFTC was that Kraft ended up acquiring $5.4 million worth in ill-gotten gains.

All three parties agreed to settle the case in March, with a commission saying that its five members unanimously agreed to a settlement that, among other things, bars the companies from making public comments on the case.

It seems a little odd, as both the scale of the lawsuit from the CFTC as well as the fine aren’t particularly large considering the scale of the companies in question. Some would argue that it would make more sense for the two firms to just keep quiet and let the matter die down. Regardless, investors will be paying attention to how this entire affair sorts itself out. 

Kraft Heinz Company Profile

In July 2015, Kraft merged with Heinz to create the third-largest food and beverage manufacturer in North America behind PepsiCo and Nestle and the fifth-largest player in the world. Beyond its namesake brands, the combined firm’s portfolio includes Oscar Mayer, Planters, Ore-Ida, and Philadelphia.– Warrior Trading News

Mondelez International Company Profile

Mondelez has operated independently since October 2012, following the split from the former Kraft Foods North American grocery business. The firm is a leading player in the global snack arena with a presence in the biscuit (43% of sales), chocolate (31.5%), gum/candy (13.5%), beverage (5%), and cheese and grocery (7%) aisles. Mondelez’s portfolio includes well-known brands like Oreo, Chips Ahoy, Halls, Trident, and Cadbury, among others.– Warrior Trading News