Kraft and Mondelez: Six Months of Wheat and a Plan to Sell It Back

The Kraft Mondelez CFTC wheat manipulation settlement required a $16 million civil penalty over allegations that the food business used wheat futures to drive down the price of wheat it bought for its mill. The alleged strategy depended on what grain sellers would believe about a large buyer’s needs. The Commodity Futures Trading Commission’s complaint built that allegation around procurement emails, storage capacity and delivery records.

Kraft Foods Group and Mondelez Global agreed to the penalty under a May 13, 2022 court order. The complaint describes trading before the October 2012 corporate split that transferred the North American snack-food business to Mondelez Global.

The central commodity market manipulation allegation was about using a futures position to change the terms on which the company could buy physical wheat. The agency also alleged excessive positions and fictitious exchanges of futures for physical wheat.

The Wheat Purchase Was Supposed to Change the Price

The Commodity Futures Trading Commission alleged that high cash wheat prices in late summer 2011 prompted Kraft’s procurement staff to propose buying $90 million of December wheat futures on the Chicago Board of Trade, roughly a six-month supply for its Toledo mill. Senior management allegedly approved the proposal. The agency alleged that the company wanted sellers to believe it would take delivery and use the wheat, while intending to avoid loading out and using most of it.

The complaint describes Kraft ordinarily buying physical wheat from grain producers or wholesalers and using futures to hedge those purchases. According to the agency’s complaint, the proposed strategy sought to raise December futures prices, narrow the gap with March futures and reduce the cash-market premium, the wheat basis, Kraft paid over December futures.

The complaint quotes the procurement director explaining the expected chain reaction in an email to the chief financial officer and other senior management:

According to the agency, the anticipated benefit reached both sides of the business: cheaper wheat for the mill and a gain on the futures spread. The quoted email described selling the wheat back as part of the plan from the outset.

We see the problem in the sequence the agency alleged. Sellers were supposed to price wheat around a customer’s apparent need, while that customer’s own plan already contemplated handing the wheat back. The grain sellers on the other side were making real commercial decisions against that signal.

The Mill Could Not Use Just Any Wheat

The Toledo mill’s requirements explain why the proposed delivery mattered. The complaint describes Kraft using soft red winter wheat to make flour for products including Oreo cookies and Ritz crackers. Wheat bought for that purpose had to meet baking and food-quality specifications.

According to the complaint, cash purchases let Kraft negotiate quality, including limits on insect damage and vomitoxin, as well as where and how the grain would arrive. It ordinarily sourced wheat in the Toledo region and received it by rail or truck. Wheat obtained through the futures delivery process offered less control over both quality and location.

The agency alleged that Kraft rarely used that delivery process and normally refused registered futures wheat in its cash-purchase contracts. Lower-quality futures wheat could require additional purchases of better wheat for blending. Those purchases would need storage too.

The complaint describes a mill that could store 5 million bushels and normally aimed to hold two months’ supply. It alleges that the mill was already more than 80% full in November. The proposed futures quantity could not fit in Kraft’s own facilities.

Location made the alleged plan harder still. According to the complaint, a September trial run delivered shipping certificates for wheat at Mississippi River facilities that could not send barges directly to the mill. Moving that grain required a transfer from barge to rail. The agency alleged that this experience showed the procurement team why futures delivery could not reliably supply wheat that was easy to get to Toledo. We follow those details because the people who run the physical business may understand the proposed trade better than its description on a position report suggests.

The Position Grew, but Most of the Wheat Stayed Away

The complaint alleged that by November 29, 2011, Kraft’s December futures position represented 15.75 million bushels of wheat. By December 7, its position accounted for 87% of the open interest in that contract.

The procurement director’s later email, quoted in the complaint, reported a narrower futures spread and a lower cash basis. It then described the next move:

The complaint describes two distinct delivery stages. A shipping certificate represented an interest in wheat available for load-out at an approved facility. The certificate itself could be traded. Receiving it and moving wheat to the mill were different events.

According to the complaint, Kraft received certificates covering 6.6 million bushels but loaded out only 660,000 bushels, less than 5% of the position it had carried in early December. It resold most of the certificates after cash prices declined.

The agency further alleged that Kraft closed all its remaining long futures contracts on December 9 without buying a similar quantity in the cash market. The actual load-out and subsequent purchases gave the agency a way to test the claimed demand against what the business did.

Position Limits Were a Separate Allegation

The position-limit count concerned how much wheat exposure Kraft held during the delivery period and whether it had a valid hedge exemption. The complaint identified a 600-contract speculative spot-month limit then in force. It alleged that Kraft let its exemption lapse and held excess positions on five days in early December, including 2,110 contracts above the limit on the first of those days. The agency also alleged that Kraft lacked a commercial need for the position it acquired.

Exchanges for Physical Wheat Without the Wheat

The exchange-for-physical allegation concerned transactions between accounts the agency alleged Kraft controlled. The complaint said that Kraft’s internal software could not distinguish long and short positions for the same contract month in a single account, so the company kept them in separate accounts.

Before delivery periods, the company allegedly offset those positions through off-exchange transactions cleared as EFPs. According to the complaint, its finance department set the price, procurement staff passed the instruction along, and the clearing firm executed the trade.

The complaint explained that an exchange for physical wheat required a corresponding physical transaction between independent parties, documented as a physical sale. It alleged that Kraft controlled both sides, transferred no physical wheat and created none of the ordinary physical-sale documentation. The agency alleged that the only documentation consisted of entries moving futures positions between accounts.

The alleged accounting workaround had become a recurring transaction. An exchange for physical wheat. Minus the physical wheat.

What the Wheat Settlement Required

The court directed Mondelez Global to pay the $16 million civil penalty. Against that, the Commodity Futures Trading Commission alleged more than $5.4 million in trading profits and savings. The companies denied all four counts.

We find the contrast telling: an agreement to pay millions, while denying the conduct those millions settle. The procurement emails and delivery records remain the most useful parts of the story for someone who recognizes similar conduct inside a business.

The Connection Between the Physical and Futures Books

Trading across linked markets can put the apparent purpose of a transaction on one book and its financial benefit on another. A preliminary 2024 working paper from a World Federation of Exchanges research project, An Analysis of Market Manipulation Definitions Around the World, describes cross-market strategies involving different instruments, counterparties and desks, with profits taken elsewhere.

For the wheat allegations, that perspective brings the mill’s cash purchases into the same picture as the futures spread and delivery decisions. It explains why looking at the procurement book or the trading book alone can leave the purpose of a transaction obscure.

The Commodity Futures Trading Commission’s TOTSA TotalEnergies Trading SA settlement offers a related example. The agency alleged that the company sold winter-grade EBOB gasoline below prices buyers were offering in an attempt to depress a benchmark and benefit short futures positions. In the wheat case, the alleged pressure ran from futures into the price of physical supplies. The common question is which connected position stood to benefit from changing the price.

What Evidence Is Required to Prove Fraud?

For these wheat-market allegations, procurement communications, trading accounts and physical-delivery records connect the intended price effect to the company’s actual needs and conduct. The complaint follows the proposal, management’s approval, the position, the certificates, the load-out and the unwind.

A mill employee may know why the wheat could not be used or stored as proposed. A procurement specialist may understand the basis negotiations and the instruction to switch back to cash purchases. Someone in finance or clearing may know why positions moved between company accounts and whether a physical sale accompanied them. We bring those views together with you to build the trading story around the decisions behind the records.

Under the Commodity Exchange Act, qualifying whistleblowers in the CFTC whistleblower program can share 10% to 30% of monetary sanctions recovered. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a separate program from the CFTC’s commodity-market enforcement.

You Know What the Mill Actually Needed

If you know why a wheat position was built, what procurement intended or what happened to the delivery, speak to one of our Whistleblower Experts about the trading behind the purchase. We work beside you to build your strongest commodity whistleblower case and bring in CFTC whistleblower lawyers who understand physical commodity markets and futures trading. Your knowledge of the business belongs at the center of that work, from our first conversation through the pursuit of a recovery.