For at least five years, Tyson Foods controlled an illegal share of the futures market for soybean meal, an essential component in growing the chickens that Tyson's business is built on.
The company also reported incorrect numbers on forms submitted to federal authorities and failed to maintain the required documentation of its market activities, according to an order from the federal agency in charge of regulating the commodity futures and option markets.
The Commodity Futures Trading Commission fined Tyson Foods a civil penalty of $1.5 million on April 13 for violating position limits and for failing to comply with reporting and recordkeeping obligations.
Tyson Foods produces around 20% of America’s beef, pork and chicken, sold under brands like Jimmy Dean, Hillshire Farm and Sara Lee.
Position limits restrict the number of derivative contracts a person or group can hold in order to prevent that entity from having too much control over the market and commodity prices.
From January 2016 to January 2021, Tyson Foods held an average of 38% more soybean meal contracts than allowed, according to the CFTC order.
Tyson Foods did not return a request for comment. The CFTC declined to provide information beyond what was in the order.
Former CFTC attorney Braden Perry said the fine is one of the largest for position limit violations in recent history.
“It’s somewhat unusual that the CFTC brought the charges, although it’s happened before, and primarily for repeat offenders,” Perry said. “It’s a signal that the CFTC will take reporting and recordkeeping seriously.”
According to the company’s most recent annual report to shareholders, corn, soybean meal and other feed ingredients account for 53% of the cost of growing a live chicken domestically.
The annual report said Tyson Foods purchases futures and options “to reduce the effect of changing prices and as a mechanism to procure the underlying commodity.”
Companies can purchase futures and options contracts in excess of the position limit if the business receives a hedge exemption. Tyson Foods did not have an exemption at the time of the position limit violations, according to the CFTC order.
In forms submitted to the CFTC for all but two months from January 2016 to August 2020, Tyson Foods overstated sales of corn and soybean meal and failed to report purchases and sales from Tyson-owned grain elevators.
Tyson Foods also violated recordkeeping requirements by not documenting purchases that exceeded position limit rules.
The CFTC order states Tyson Foods cooperated with the investigation, resulting in a lower penalty. It also prohibits Tyson Foods representatives from publicly denying or undermining the CFTC’s findings.