Global Processing

Regulators probing alleged milk price manipulation

June 13, 2008
The Associated Press is reporting that federal commodity regulators are investigating whether the farmer-owned dairy cooperative that controls about a third of the nation''s milk supply engaged in a price manipulation scheme, a spokeswoman for the group said recently.

Monica Coleman, a spokeswoman for the Dairy Farmers of America, said the Commodity Futures Trading Commission is looking into the group''s trading of cheese futures on the Chicago Mercantile Exchange.

The price of cheese futures can impact milk prices. The Department of Agriculture sets a minimum price of milk that is based in part on a survey of cheese prices that includes futures prices.

Coleman said the investigation, which was reported by the Wall Street Journal, isn''t new. The group has cooperated with the CFTC on the matter since 2004, she said. The Journal reported that the CFTC is preparing to bring charges against DFA.

The price of milk jumped 13.5 percent in the past year, according to the Bureau of Labor Statistics, but Coleman said the activity reported was from 2004 and didn''t affect today''s prices.

A spokesman for the CFTC would neither confirm or deny any investigation.

The DFA was formed in 1998 through the consolidation of four regional marketing cooperatives. The group markets 61.7 billion pounds of milk for more than 19,000 dairy farmer members.

A report last year by the Government Accountability Office, the investigative arm of Congress, found that cheese trading on the Chicago Mercantile Exchange is susceptible to manipulation because cheese futures are thinly traded.

The Kansas City-based dairy cooperative, the nation''s largest, also faces antitrust lawsuits by farmers and retailers for allegedly conspiring to suppress prices it paid for raw milk in the Southeast, while raising prices to the region''s retailers, according to the Journal. The alleged scheme could have boosted its profit as a middleman in those transactions.

Several of the antitrust suits, which have been consolidated in a federal district court in Tennessee, also name Dean Foods Co., a food and beverage company based in Dallas, as a co-defendant.

Separately, the DFA disclosed an unauthorized $1 million payment to a former director of the group in a letter to its members recently. The group has notified the Justice Department of the payment, Coleman said.

The Justice Department is preparing to investigate the payment, the Journal reported, citing people close to the matter.