Market Matters Blog

CFTC Fines Two Grain Trading Operations

The Commodities Futures Trading Commission publicized two enforcement actions against physical grain trading operations in the past week. The total price tag: Just shy of $1 million dollars.

In the first, announced last week, CFTC ordered Cargill's Mexico branch to pay a $500,000 fine for executing wash trades between March 2010 and August 2014.

In the second, announced Wednesday, grain merchandiser Alfred C. Toepfer International was ordered to pay a $400,000 fine for inaccurately reporting its physical positions in grain markets. The misstatements occurred before ADM acquired Toepher in 2014.

CFTC sends out emails almost daily listing enforcement actions, but they're most commonly for issues like commodity pool fraud, brokers operating without the proper licenses and such.

When you take into account last April's charges that Kraft Foods manipulated the soft red winter wheat market, clearly, the commodities market regulator is focusing on anti-competitive practices across the spectrum of market participants.

In the case against Cargill de Mexico, CFTC alleged that it "engaged in wash sales and unlawful non-competitive transactions in certain agricultural futures products, including corn, soybeans, and wheat on the CBOT, as well as in hard red wheat traded on the KCBT," a CFTC press release stated. "Before orders for these trades were entered on an exchange, Cargill de Mexico employees, either acting alone or with another employee, entered equal and opposite transactions in the same futures contract for another account that was also owned by Cargill de Mexico, and matched the product, quantity, price, and timing of those orders and trades. The Order finds that by so prearranging, structuring, and entering these orders, which negated the risk incidental to an open and competitive marketplace, Cargill de México also engaged in noncompetitive transactions."

In addition to the fine, CFTC ordered Cargill de Mexico to improve training for employees on compliance and ethics as well as submit reports on how it's preventing these kinds of uncompetitive practices from occurring.

The tone of the Toepfer enforcement press release was a little different. CFTC seemed to sing the company's praises for replying quickly, cooperating and "instituted remedial action to strengthen the internal controls and policies relating to the preparation of CFTC Form 204 reports."

Form 204 reports show the composition of fixed price cash positions in each commodity that a company hedges, and CFTC uses it to check compliance with speculative position limits.

"The Order finds that during the period from at least May 2010 through December 2013, Toepfer held reportable positions in Form 204 commodities and was required to file Form 204 reports showing the quantities of the fixed price purchase and sale open cash positions of such commodities it hedged. The Order further finds that during the period, Toepfer filed 44 Form 204 reports with the CFTC that did not accurately state the quantities of Toepfer’s fixed price cash positions of each such commodity it hedged.

"Specifically, the Order finds that Toepfer included in its Form 204 reports both basis and fixed priced cash positions. Toepfer, thereafter, submitted corrected Form 204 reports and displayed significant cooperation during the CFTC’s investigation of the matter."

So what's the take away for farmers and agribusinesses? CFTC may not act swiftly, but they're monitoring both speculative and commercial traders for engaging in practices that skew the market.

(CZ)

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