Lawsuit alleges ADM manipulated cash ethanol market to profit from derivatives


Mark Weinraub, Reuters†

September 5, 2019


CHICAGO (Reuters) - Global grain trader and food processor Archer Daniels Midland Co allegedly manipulated the price of ethanol to profit from a short position it was holding in the derivatives market, according to a lawsuit by a rival firm.


AOT Holdings, a Swiss company that owns an energy trading subsidiary, filed the class action complaint late on Wednesday in U.S. District Courtís Central District of Illinois Urbana Division, claiming damages from† ADMís actions of up to $6.33 million.


The lawsuit follows reporting by Reuters last year that ADMís ethanol selling had led traders to complain to S&P Global Platts, which provides benchmark pricing for the physical ethanol contract at different U.S. delivery points including Chicago.


According to the lawsuit seen by Reuters, ADM was aggressively selling ethanol on the cash market at the Argo terminal just outside of Chicago. The selling would start 30 minutes ahead of the close of the trading day, it said.


ďThe evidence indicates that ... much of ADMís behavior was economically irrational and contrary to its self-interest as an ethanol producer ó unless it was intended to manipulate physical ethanol prices at the Argo Terminal,Ē the lawsuit said.


Illinois-based ADM, a major ethanol producer, said in an email that it did not comment on pending litigation.


The selling on the physical market began in November 2017 and continues through ďtoday,Ē the lawsuit said.


ADMís selling came during an upheaval in the domestic ethanol market as U.S. demand flatlined and export markets, including China and Brazil, were cut off due in part to the effects of U.S. President Donald Trumpís widening trade disputes.


Ethanol producers typically hold short positions as a hedging strategy but AOT claimed that ADMís actions far outstripped those risk management needs...