Ethanol Case Moves to Illinois

Judge Rules Green Plains Inc. Claims Nearly Identical to Other Cases

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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A federal judge in Nebraska granted Archer Daniels Midland a requested change of venue in an ethanol market case. (DTN/Progressive Farmer file photo by Pamela Smith)

OMAHA (DTN) -- The legal fight to prove alleged ethanol market manipulation against Archer Daniels Midland will be consolidated in a federal court in Illinois after a Nebraska court approved ADM's motion to change venue.

Omaha-based Green Plains Inc. filed a class-action lawsuit in July alleging ADM conducted a scheme to illegally depress the ethanol cash spot market.

There are two other similar lawsuits filed in the U.S. District Court for the Central District of Illinois, one by Midwest Renewable Energy (MRE) and another by Swiss company AOT Holdings. Both cases allege ethanol-market manipulation by ADM.

Judge Michael D. Nelson in the U.S. District Court for the District of Nebraska said in his order on Friday Green Plains' case is nearly identical to the other two cases.

"In fact, the majority of Green Plains' complaint contains verbatim allegations as contained in the AOT and MRE complaints and includes the same graphics and charts," Nelson said.

"Green Plains attempts to differentiate its case from AOT and MRE cases by suggesting this action is the only case brought on behalf of physical ethanol sellers. However, review of MRE's complaint demonstrates that MRE is also an ethanol seller and producer seeking to represent a class of ethanol producers and sellers harmed by ADM's alleged price manipulation scheme."

The judge said because AOT Holdings filed its complaint in Illinois more than 10 months before Green Plains filed its complaint, "also weighs in favor of transfer because the two other putative class action cases are pending before the same district judge and magistrate judge in that district, and the parties have already engaged in motion practice and discovery there."

Green Plains had argued its case was different from the others. The company claims it is the only plaintiff to have lost money on physical ethanol sales as a result of ADM's alleged scheme.

ADM said in a legal brief Illinois plaintiff Midwest Renewable Energy has leveled the same accusation in its lawsuit.

ADM wanted consolidation of all three cases in Illinois where it said in a brief that Green Plains, "could take advantage of the discovery already taken, such as the roughly two million pages of documents already produced and share with other plaintiffs -- one of whose complaint they copied -- the cost and work of trying to substantiate their claims."

Green Plains and other plaintiffs have alleged ADM has flooded the Argo terminal with ethanol to drive down the price, starting in November 2017 and accepted low-priced bids as the dominant seller rather than asking or waiting for a higher price.

The Argo terminal is the daily location for ethanol trading. The 30-minute trading window at the terminal is considered crucial because it is used to set the daily Chicago benchmark price to determine the value of Chicago ethanol derivatives.

That benchmark price is used to price and settle ethanol derivatives on the New York Mercantile Exchange and the Chicago Board of Trade.

ADM also has asked the court to dismiss the lawsuit, alleging the law does not allow Green Plains to sue for losses selling a commodity such as ethanol.

Green Plains stated ADM was selling 1 million gallons of ethanol on average near the market closing window. That adversely affected industry-wide prices for ethanol. ADM offset lower prices on its own physical ethanol sales at the Argo terminal by "acquiring short-sided speculative derivative contracts at an unprecedented scale, and then targeting the terminal and pricing mechanism used to determine the price of those derivative contracts," Green Plains stated in its lawsuit.

Derivatives are contracts with values derived from other assets such as stocks, commodities or currencies.

A derivative is a contractual agreement generally between two parties. When one party buys a derivative security, it is said to be long the derivative. When a party is short a derivative, it is a seller of the derivative.

Green Plains alleged that by executing this strategy with derivatives, ADM used the closing market window to sell approximately 821 million gallons of ethanol, which Green Plains called "a sea change" in ADM's market trading behavior before November 2017.

Green Plains operates 13 ethanol plants across the Midwest, including five in Nebraska. In all, the company has an annual production capacity of about 1.1 billion gallons. ADM operates eight ethanol plants across the Midwest, with about 1.7 billion gallons in annual production capacity.

The lawsuit said ADM used its "size, proximity and relationships to exploit and overwhelm" the Argo terminal and "force a desired, self-serving pricing outcome" on other market participants.

During the time of the alleged scheme, the lawsuit said, ADM had five ethanol plants within 250 miles of Argo with about 1.2 billion gallons of production capacity.

Green Plains said this means ADM had "a greater ability to flood the Argo terminal" with ethanol and sell it at lower prices.

Todd Neeley can be reached at todd.neeley@dtn.com

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Todd Neeley