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Breaking News on Food & Beverage Development - Europe - Cargill and ABF-owned firm accused of manipulating wheat market

By Sarah Hills , 02-Aug-2011

Related topics: Cereals and bakery preparations, Financial & Industry, Food prices

Reports that a company owned by Cargill and ABF bought all the available UK feed wheat last month has renewed calls for tighter regulation of commodity markets.

Traders reportedly told the Bureau of Investigative Journalism that Frontier Agriculture bought all available May Futures contracts on the London International Financial Futures and Options Exchange (Liffe) in the period running up to the tender date in the last week of April.

It has been described as an unprecedented move and an attempt to manipulate the market, which Frontier denies.

However, the BIJ says that Frontier is believed to have taken delivery of about 225,000 tonnes of feed wheat now worth about £40m.

Wheat prices have been particularly volatile, increasing by about 70 per cent in the last year. And the price of feed wheat has a knock-on effect on wheat used in food such as bread, as it sets the benchmark price.

Amy Horton, is a campaigner for the World Development Movement, which is calling for effective regulation to curb excessive speculation and improve transparency in commodity markets.

Horton told FoodNavigator.com: The fact that a single company can buy up the entire British feed wheat harvest for a month demonstrates the need for regulation to stop individual companies from dominating the market in order to drive up prices and profiteer.

Regulation is also needed to limit the market share of financial speculators, who are not involved in the actual trade of food at all. Instead of trading on the basis of information about supply and demand, they are more likely to follow each other, leading to price bubbles.

Horton said these bubbles are problematic for food producers, who cant predict what price theyll earn for their crops, and for European consumers who face higher food prices.

She added: Food companies have been adversely affected by high and unstable prices too.

Frontier is an independent company, with a turnover of more than £750 million, jointly owned by ABF Holdings (a wholly owned subsidiary in the Associated British Foods Group) and Cargill. It did not wish to comment when asked to do so by FoodNavigator.com.

However the Bureau quotes Frontiers trading director, Jon Duffy, as stating that all the wheat contracts it took physical delivery for were made to secure enough grain to fulfil customers orders.

And Frontier strongly rejected any suggestion of an attempt to manipulate the market, without confirming or denying the unusually large trades.

The BIJ added that Frontiers purchase sent May Futures even higher compared with other contracts.

However, other diverging forces impacting the wheat market have been at play.

Excess rain during harvest in Europe threatens to downgrade wheat quality for the second year running, according to a recent report by Rabobank.

Meanwhile Russia recently lifted its grain export ban (introduced in August 2010), which dragged world wheat export market prices lower in June.

FoodNavigator.com invited both ABF and Cargill to comment but neither felt it was appropriate.

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