US ethanol producer Green Plains has filed a federal lawsuit in Nebraska accusing Archer Daniels Midland of artificially lowering ethanol prices to boost the value of its short positions.
The suit, filed July 14 in the US District Court for the District of Nebraska, accuses ADM of aggressively selling ethanol during the S&P Global Platts Market on Close assessment process to push prices lower.
"As a physical producer of ethanol, ADM should want stable or rising prices so that its physical sales would earn a profit," Green Plains said in the suit. "However, because of the disproportionate size of its derivative financial position, ADM manipulated prices to fall so that its financial derivatives would earn a profit. Instead, ADM sacrificed its profits on physical sales in order to leverage even larger profits on its derivatives contracts."
An ADM spokeswoman declined to comment.
The lawsuit focuses on ADM's trading activity since November 2017 at the Kinder Morgan Argo Terminal in Argo, Illinois, which serves as the price reference point for nearly all physical and financial ethanol transactions.
Green Plains said ADM's strategy involved three steps: flooding the Argo terminal with ethanol, hurriedly lowering offers or accepting low-priced bids during the MOC process rather than waiting for higher prices, and securing short-sided speculative derivative contracts "at an unprecedented scale" at NYMEX and CBOT.
Green Plains said ADM's sales of 1 million gal/d of ethanol in the MOC lowered the prices of more than 32 million gal/d of physical ethanol produced industrywide.
"The uneconomic nature of ADM's trading behavior left other participants in the dark about ADM's strategy, and even those participants who understood it could not take on the enormous risk required to defend themselves through their own derivatives positions," the suit says.
Platts not named as defendant
A Platts spokesman declined to comment on the lawsuit, which does not name Platts as a defendant.
"The S&P Global Platts ethanol values are assessed using a consistently applied published methodology, by surveying buyers and sellers in the open markets and publishing the data received in real time for the market to see and respond to, ensuring the integrity and relevance of our valuations," the Platts spokesman said.
The spokesman said Platts is independent and has no vested interest in whether prices go up or down.
"Our methodology is designed to publish prices that reflect market value in liquid and illiquid markets," he said. "We consistently review our methodologies to ensure they are evolving with the marketplace."
Green Plains' complaint echoes a similar US lawsuit filed against ADM in September 2019 by Swiss commodities trader AOT Holding.
The suit says ADM shifted in November 2017 from one of the largest buyers of ethanol at the Argo Terminal during the Platts MOC assessment process to "by far the largest seller," accounting for roughly 90% of all sales. It says ADM was never a buyer from November 2017 through March 29, 2019.
AOT said ADM routinely sold more ethanol at low prices than it could deliver.
