Every few months now, it seems, another price manipulation scandal emerges. First, it was bank traders fixing Libor, the interbank lending rate, in exchange for steak dinners and bottles of Bollinger. Then, many of the same banks were accused of doing much the same thing to foreign exchange rates. From there, the investigations have spread to traders of precious metals. Critics say the burgeoning probes are proof positive that banks have a cultural problem.
Now comes a complaint from the US Commodity Futures Trading Commission that accuses Kraft Foods Group and Mondelez, the sister companies created by the 2012 break-up of Kraft Foods, of manipulating the price of wheat. According to the CFTC, while still combined as Kraft Foods, the group bought a “huge” wheat futures contract in order to push down the prices of actual wheat for sale in Ohio, near the mill that made flour for the group’s cookies and crackers.
While Kraft routinely bought wheat futures contracts as a price hedge, it almost always closed them out in favour of buying wheat on the local market, the complaint said. That is because futures wheat is lower quality and costs much more to transport to the mill. But, in late 2011, Kraft bought $90m in contracts, 87 per cent of the market for that particular date, and then took delivery of some of the wheat. Prices in the local wheat market fell as farmers reacted with fear to Kraft’s new source of grain. The company then sold most of its futures, netting more than $5.4m on all the price moves.
via Corporate traders aren’t exactly saints, either – FT.com.