These are stories Report on Business is following Thursday, April 2, 2015.
CFTC accuses Kraft, Mondelez
Some of the most iconic names in the snack food business are at the heart of allegations of wheat price manipulation.
We’re talking about brands like Oreo and Chips Ahoy cookies, Triscuit crackers and others.
Late yesterday, the Commodity Futures Trading Commission in the United States accused Kraft Foods Group Inc. and its former parent, Mondelez International Inc., of manipulating wheat prices a few years ago.
The CFTC sued the two companies in federal court, alleging this was done via purchases of some $90-million (U.S.) of futures.
No allegations have been proven in court.
“This case goes to the core of the CFTC’s mission: protecting market participants and the public from manipulation and abusive practices that undermine the integrity of the derivatives markets,” Aitan Goelman, the regulators enforcement chief, said in a statement announcing the lawsuit.
“A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price.”
This came before the breakup of Kraft Foods Inc., in 2012, into the two companies that exist today. And Kraft Foods, of course, is now being taken over by H.J. Heinz.
The CFTC alleges the companies bought six months’ worth of wheat futures amid a rise in costs in 2011, but never planned to take delivery, the goal being a drop in prices on the cash market.
Kraft also held futures positions above the speculative limits, according to the complaint.
The profits, it alleges, amounted to some $5.4-million.
Kraft, the CFTC says, is one of America’s biggest end users of No. 2 soft red winter wheat. It uses about 30 million bushels of wheat a year for products like Orea, Chips Ahoy, Ritz, Triscuit and Wheat Thins.
And the bulk of that wheat, generally sourced in Ohio, Indiana, Michigan and Ontario, is milled in Toledo.
In the summer of 2011, the CFTC alleges, wheat prices rose to $7.72 a bushel from $5.74.
“In developing the strategy, Kraft, acting through certain of its procurement staff and certain senior management, intended that the futures market would react to its enormous long position by increasing the price of the December 2011 futures contract while reducing the differential between the December futures price and the price of the cash market wheat,” the document alleges.
“Kraft executed its plan, and the market reacted as Kraft expected, yielding Kraft more than $5.4-million in futures trading profits and savings from its strategy.”
A Mondelez official was not immediately available to comment.
“While Kraft is named in the CFTC complaint, the transaction at issue occurred before our spinoff from Mondelēz International in October 2012, and it involved the business now owned and operated by Mondelēz or its affiliates,” Kraft said in a statement.
“The CFTC complaint primarily focuses on the trading of wheat futures contracts in December 2011. More specifically, the type of wheat involved in the transaction is used in products such as cookies and crackers, which are not made by Kraft Foods Group.”
It added it doesn’t expect any material impact financially.
- CFTC allegations
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Canaccord chief dies at age 52
Paul Reynolds, chief executive officer of Canaccord Genuity Group Inc., has died following complications related to an incident while competing in a triathlon in Hawaii.
Canaccord’s board announced Mr. Reynold’s death this morning and said the company’s chairman, David Kassie, is taking over as CEO immediately.
Mr. Reynolds was 52 and leaves a wife and four children, The Globe and Mail's Bertrand Marotte reports.
“As the architect of our firm’s global transformation, Paul’s distinct style of partnership, friendship and respect over three decades of commitment is just part of the legacy he leaves us all,” Mr. Kassie said.
Trade deficit narrows
You’ve got to read a bit beneath the headline number to learn the state of Canadian trade, and what it means.
Canada’s trade deficit narrowed in February to $984-million, from January’s revised reading of $1.5-billion, as exports rose 0.4 per cent and imports fell 0.7 per cent, The Globe and Mail's David Parkinson reports.
Export volumes slipped 3.3 per cent, according to Statistics Canada today, while prices climbed 3.9 per cent.
On the other side of the ledger, import volumes also fell, by 1.7 per cent, and prices rose 1.1 per cent.
Leading the export gains were those of energy products, which climbed by almost 15 per cent. Crude oil and bitumen rose 9.3 per cent, natural gas by 45.1 per cent, and refined products by more than 22 per cent.
Energy prices gained 17.5 per cent, but volumes were still down, to the tune of 2.3 per cent.
“Canada’s economy dipped in January, and the early news for February showed more of the same,” said chief economist Avery Shenfeld of CIBC World Markets.
“Don’t pay too much heed to the ‘improvement’ in the trade balance … as that came on falling activity in both directions.”
- David Parkinson: Canada's trade deficit narrows on improving energy prices
- U.S. trade deficit lowest since 2009, ports dispute likely a factor
Global markets are truly mixed so far this morning.
Tokyo’s Nikkei climbed 1.5 per cent, and Hong Kong’s Hang Seng 0.8, but the picture is less certain in Europe.
London’s FTSE 100 was down marginally by about 8:10 a.m. ET, while Germany’s DAX was also down and the Paris CAC 40 up 0.1 per cent.
New York futures were down.
“Global equity markets are steady this morning as we near the end of this holiday-shortened week and have largely struggled to sustain any positive momentum since China’s stimulus speculation supported gains earlier in the week,” said senior economist Carl Campus of BMO Nesbitt Burns.
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