A motion by the defendants for dismissal of Commodity Futures Trading Commission charges of market manipulation by the companies that are now Mondelez International, Inc. and Kraft Foods Group, Inc. goes a long way toward filling in the picture of what has been a very strange case.
Anyone familiar with Mondelez (the company that now owns the Toledo, Ohio, flour mill at the center of the case) as well as the company’s highly regarded, experienced wheat team felt a powerful sense of disconnect when the C.F.T.C. announced the charges involving actions taken by the company in late 2011. In its dismissal motion, the company described mounting frustration at the time in the lack of convergence between wheat futures and cash markets, a problem resulting in persistently high wheat basis levels. Eventually, the company made a considered decision to take delivery of wheat, even while knowing the process would be cumbersome. The company was predicting, accurately in the end, that when a ranking soft wheat user demonstrated a willingness to take delivery against Chicago futures, the wheat basis would return to levels closer to historical averages.
Without trying to predict what will become of the dismissal motion, it may be hoped that this case will draw greater attention to the festering problem of the lack of convergence between futures and cash prices for wheat and other grains, too. It also validates the longstanding principle that the credible possibility of taking physical delivery of grain, rare as it may be, remains crucial if futures are to achieve successfully their price discovery function.
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