Corporate traders aren't exactly saints, either

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.

If proven, the alleged behaviour would violate CFTC rules on market manipulation and limits on the size of futures contracts that can be used for speculation. Mondelez, which ended up with the cookie and cracker business when Kraft was broken up, is now on the hook for any penalties that may result. It has declined to comment, except to say that it doesn't believe the costs will be material.

Still, the case casts doubt on claims that there is a fundamental difference between bank traders and those that work for corporations.

Kraft, Mondelez and their ilk are supposed to be the good guys. They make Oreo cookies, Velveeta cheese and Triscuits. The Kraft Foods Group part has just been snapped up by a consortium including Warren Buffett.

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Unlike much maligned "speculators", such corporates are supposed to be tapping the futures market to protect a legitimate business interest: keeping costs reasonably stable, even when commodity prices bounce around. To that end, big US corporates including Kraft and Mondelez have been lobbying to broaden the "end user" exemption to the CFTC's new, tougher limits on speculative trading.

The allegations in the Kraft case suggest that corporates are not immune to the thrill of rate-rigging. Nor is the case unprecedented. Enron famously tampered with the California energy markets and BP paid $300m in 2007 to settle propane market manipulation claims.

To be fair, corporate cases are still quite rare. The Kraft folks allegedly tried their trick once and have been hit with a civil lawsuit. Some of the bank traders are facing criminal allegations, that they deny, suggesting they tried to move Libor rates repeatedly over a period of years. But there is no reason to believe that corporate traders are somehow holier than those who sit in financial institutions. The CFTC's planned curbs on speculative trading should be adopted with that in mind.

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