Dairy Farmers of America (DFA) is facing court over allegations that it manipulated trading in the Chicago Mercantile Exchange (CME) Cheese Spot and Milk Futures markets to drive up the price of dairy products across the US.
A lawsuit – filed last month in Vermont by several consumers - alleges that in 2004 DFA bought cheese on the CME Cheese Spot market despite having an “inordinate supply of cheddar cheese and no conceivable use for the cheese it was purchasing.”
The CME Cheese Spot market is not a major source of cheese for buyers – representing less than 2% of the national supply. It does, however, help to determine the broader vale of dairy products sold in the US.
According to the claimants, DFA’s goal was to sustain higher cheese prices.
The lawsuit also alleges that DFA bought CME Milk Futures contracts to simulate demand and encourage higher prices – knowing that these prices were used as a basis for national dairy product prices.
Alongside DFA, Keller’s Creamery and National Dairy Holdings have been cited as co-defendants, and Schreiber Foods as a “co-conspirator.”
DFA actions “purely manipulative”
“DFA made these cheese purchases even though it had an excess inventory of chest that was growing old and required liquidation,” said the lawsuit.
“DFA’s procurement department had advised its trader that DFA has excess cheese that there was no need for any additional Cheese Spot purchases. Contrary to this advice, DFA continued to purchase on the Cheese spot market.”
“As it expected, DFA later sold the cheese that it purchased on the CME outside of the CME at a substantial loss,” said the document.
The lawsuit also alleges that beginning in 2004, DFA and the other defendants began buying a large number of long Milk Futures contracts – resulting in an increase in the price of Milk Futures.
“Defendants’ Milk Futures purchases were not for bona fide supply and demand reasons, nor were they for bona fide hedging purposes – they were purely manipulative and uncovered contracts,” said the court-filed document.
“This manipulation divested the price on the Cheese Spot market and Milk Futures contracts from the legitimate forces of market supply and demand, and led to defendants controlling prices on both markets.”
Previous price fixing allegations….
DariyReporter.com approached Kansas City-based DFA concerning to the lawsuit, but no response was forthcoming prior to publication.
In recent years, Missouri-based DFA has been no stranger to allegations of price fixing.
In December 2008, the Commodity Futures Trading Commission (CFTC) ordered DFA to pay a fine of $12m following an investigation into its trading activity on the CME markets.
More recently, DFA agreed to pay a total of $158.6m to settle a 2007 lawsuit that alleged it conspired with Dean Foods and others to suppress raw milk prices across 14 Southeast US states.
Despite reaching the settlement agreement, DFA stated that it would be making “no admission of wrongdoing.”