Expert: ADM Manipulated Ethanol Market

Archer Daniels Midland Fights to Exclude Expert Testimony in Ethanol Market Manipulation Case

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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A federal judge is considering whether to allow testimony of an expert witness in an ethanol markets lawsuit against Archer Daniels Midland. (DTN file photo)

LINCOLN, Neb. (DTN) -- A federal judge temporarily denied Archer Daniels Midland's motion to exclude the testimony of an expert witness who says there's evidence the company manipulated ethanol markets at the Argo terminal in Illinois, as alleged by ethanol producers and other companies in a series of lawsuits.

Leading up to a trial in the U.S. District Court for the District of Central Illinois, ADM had asked the court to exclude a report and testimony of economist Shawn Ledgerwood, a former economist at the Office of Enforcement of the Federal Energy Regulatory Commission.

Ledgerwood developed a so-called regression analysis model that the plaintiffs AOT Holding AG and Maize Capital Group LLC claim shows ADM manipulated the ethanol markets at the terminal and is allegedly able to calculate economic damages caused.

U.S. District Judge Colin S. Bruce recently denied ADM's motion but with a caveat.

The court ordered both sides in the case to compile a list of possible outside experts the court could appoint to analyze the Ledgerwood report and model as to whether it is an effective way to gauge the issues central to the lawsuit.

"This leads the court to a critical realization: the court cannot make a learned, informed ruling on the admissibility of Ledgerwood's expert testimony and report because, based on the parties' briefs and the report itself, the court does not fully understand Ledgerwood's models," Bruce said in an order.

"The regression analysis models discussed in Ledgerwood's report and the parties' briefs are highly complex econometric statistical models, the kind of which the court may have been passingly familiar with many years ago, but which has since faded from memory."

AOT is one of several plaintiffs that have sued ADM, alleging the company manipulated ethanol prices, violating the Commodity Exchange Act. Specifically, AOT has alleged ADM suppressed the daily benchmark price of ethanol to benefit its short positions.

AOT has alleged ADM's actions benefited the company by increasing the value of ADM's "short" or "hedged" ethanol positions.

AOT filed a class-action lawsuit in May 2020, alleging ADM manipulated the market at the Argo terminal by flooding the fuel terminal with lower-priced ethanol starting in November 2017 through March 2019.

According to the court's order, Ledgerwood used several inputs to the model to show ADM allegedly manipulated the market.

That includes the futures price of corn; wages paid to manufacturing workers; electricity and natural gas prices; prices of byproducts of ethanol production; railroad transportation costs; storms or other severe weather in Illinois; the gasoline price in New York Harbor; the price of renewable identification numbers, or RINs; the amount of ethanol and gasoline stocks in the U.S.; and U.S. imports and exports of ethanol and Chinese tariffs on those.

"Per Ledgerwood, the model consistently predicted but-for prices at Argo that were higher than those actually observed during the class period, thus indicating continued but varying price suppression," the court order said.

ADM has argued Ledgerwood and his report are not admissible because the model almost always finds ethanol-price suppression on ADM's part and that he used the wrong model and data for pricing, among other issues.

The Argo terminal is the daily location for ethanol trading. The court said the specific trading in question occurred during the 30-minute "market-on-close," or MOC, window.

The trading window is considered crucial because the trading is used to set the daily Chicago benchmark price to determine the value of Chicago ethanol derivatives.

Similar lawsuits were filed by Wisconsin ethanol producers United Wisconsin Grain Producers, Didion Ethanol, Ace Ethanol, Fox River Valley Ethanol, Badger State Ethanol and Iowa producer Pine Lake Corn. In addition, a lawsuit filed by Green Plains Inc. in Nebraska was transferred to the Illinois court.

Read more on DTN:

"ADM Ethanol Market Case Resumes in Illinois," https://www.dtnpf.com/….

"ADM Ordered to Release Docs on Employee," https://www.dtnpf.com/…

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

Follow him on Twitter @DTNeeley

Todd Neeley

Todd Neeley
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