OMAHA (DTN) — Archer Daniels Midland asked a federal court to drop a lawsuit alleging one of the nation’s largest ethanol producers manipulated the ethanol market beginning in November 2017.
In July, Omaha-based Green Plains Inc. alleged ADM conducted a scheme to illegally depress the ethanol cash spot market, in a class-action lawsuit filed in the U.S. District Court for the District of Nebraska in Lincoln.
ADM filed two separate motions on Monday, one asking the court to dismiss the case and another to transfer the case to the U.S. District Court for the District of Central Illinois, where the company is based.
ADM argued in the dismissal motion the law does not allow Green Plains to sue for losses selling a commodity such as ethanol.
“The only permissible claim is for losses from trading in financial derivatives (such as futures or options) that are based on a commodity,” the motion said.
In addition, ADM argued the statute of limitations had expired and Green Plains hadn’t filed a “plausible” claim of tortious interference with contractual relations.
ADM already faces a similar lawsuit in the U.S. District Court for the Central District of Illinois, where AOT Holding AG alleged ADM manipulated the market at the Argo, Illinois, terminal by flooding the fuel terminal with lower-priced ethanol starting in November 2017 through March 2019.
The Argo terminal is the daily location for ethanol trading. The 30-minute trading window at the terminal is considered crucial because it is used to set the daily Chicago benchmark price to determine the value of Chicago ethanol derivatives.
That benchmark price is used to price and settle ethanol derivatives on the New York Mercantile Exchange and the Chicago Board of Trade.
Green Plains alleges in its complaint a strategy used by ADM. To bring down prices, Green Plains stated, ADM flooded the Argo terminal with ethanol and accepted low-priced bids as the dominant seller rather than asking or waiting for a higher price.
Green Plains stated ADM was selling 1 million gallons of ethanol on average near the market closing window. That adversely affected industry-wide prices for ethanol. ADM offset lower prices on its own physical ethanol sales at the Argo terminal by “acquiring short-sided speculative derivative contracts at an unprecedented scale, and then targeting the terminal and pricing mechanism used to determine the price of those derivative contracts,” Green Plains stated in its lawsuit.
Derivatives are contracts with values derived from other assets such as stocks, commodities or currencies.
A derivative is a contractual agreement generally between two parties. When one party buys a derivative security, it is said to be long the derivative. When a party is short a derivative, it is a seller of the derivative.
Green Plains alleged that by executing this strategy with derivatives, ADM used the closing market window to sell approximately 821 million gallons of ethanol, which Green Plains called “a sea change” in ADM’s market trading behavior before November 2017.
Green Plains operates 13 ethanol plants across the Midwest, including five in Nebraska. In all, the company has an annual production capacity of about 1.1 billion gallons. ADM operates eight ethanol plants across the Midwest, with about 1.7 billion gallons in annual production capacity.
The lawsuit said ADM used its “size, proximity and relationships to exploit and overwhelm” the Argo terminal and “force a desired, self-serving pricing outcome” on other market participants.
During the time of the alleged scheme, the lawsuit said, ADM had five ethanol plants within 250 miles of Argo with about 1.2 billion gallons of production capacity.
Green Plains said this means ADM had “a greater ability to flood the Argo terminal” with ethanol and sell it at lower prices.
Todd Neeley can be reached at email@example.com
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