CHICAGO, Ill. — A civil enforcement complaint, filed April 1 in the U.S. District Court for Northern Illinois by the U.S. Commodity Futures Trading Commission (CFTC), alleges that Kraft bought $90 million in wheat futures contracts in 2011 with the intent to manipulate prices paid for wheat used at its Toledo, Ohio, flour mill.

The complaint is seen as a first test for how much the CFTC can expand its authority to regulate futures trading under the Dodd-Frank law. The issue, according to the complaint, is whether Kraft traded futures in order to manipulate market prices – not whether a commercial grain hedger like Kraft can make legitimate trades that protect its positions in the futures market.

According to the CFTC complaint, Kraft’s 2011 futures contract purchases equaled six months of wheat supply for the Toledo mill, which can only store a two-month supply. The mill uses more than 25 million bushels of wheat per year – a major market for #2 soft red winter wheat grown in the Eastern Corn Belt and Ontario, according to the complaint. The futures market moves in question resulted in a stronger cash-futures spread, reducing the cash price paid for wheat needed at Toledo, alleges the CFTC. "Kraft wheat procurement staff developed, and Kraft senior management approved, a strategy to use its status as a commercial hedger to acquire a huge long position in December 2011 wheat futures in order to induce sellers to believe that Kraft would take delivery, load out and use that wheat in its Mill," alleges its complaint.

The CFTC, which cites communication among Kraft staff outlining the strategy, alleges the futures market reacted as Kraft expected, and the company realized $5.4 million in lower prices paid to acquire wheat for the Toledo mill. The CFTC complaint also alleges between 2009-14, Kraft engaged in noncompetitive trades by trading both sides of an exchange-for-physical (EFP) CBOT wheat contract at least five times per year.

Kraft and Mondelez Global LLC, also named as a defendant, do not comment on pending litigation. Regulatory cases are often settled out of court, and the CFTC is seeking up to three times the $5.4 million it alleges Kraft saved through its 2011 futures moves.

Flour milled at Toledo is used in Kraft snack food products such as Triscuits, Wheat Thins and Oreos. A 2012 stock spin-off transaction separated Kraft’s snack foods division from Mondelez.