As the trial began, a jury of six women and four men heard Terry Reed, lead attorney for the farmers, explain how it would be proven that CBOT board members illegally manipulated the soybean market in 1989. CBOT lead attorney, Garrett Johnson, insisted his clients were innocent.

“Johnson didn’t put forth any information in his opening that surprised us,” said Harvey Joe Sanner, a farmer, plaintiff and agricultural activist from Des Arc, Ark. “Some of the things he did bring up were avenues that our lawyers were actually pleased about. We think the issues (Johnson) mentioned as potential exoneration for his clients will be easy for us to disprove.”

The case, being heard before District Court Judge Wayne R. Andersen, stems from a series of incidents in the late 1980s. In 1988, the United States experienced a severe drought. A poor crop reduced soybean stocks to a 12-year low.

The following year, market prices in east Arkansas were in the range of $7.50 per bushel. Many farmers were still holding 1988 soybeans, expecting prices to go even higher. All indications were prices were heading up due to short supplies up and down the pipeline.

Then, on July 11, 1989, CBOT issued an emergency order. The board claimed the market was being artificially inflated by the actions of a large, grain-trading firm, and they had to take steps to correct it. CBOT mandated that anyone holding large contracts for soybeans had to liquidate them. When that order was given, soybean prices dropped 40 cents almost immediately.

If class attorneys are to be believed, the behind-the-scenes story is quite intriguing. Sanner, like attorneys in the case, has been under a gag order on the case for years. With the start of the trial, he is now free to talk. He claims CBOT officials knew the devastating consequences of their mandate. Officials likened the potential of the emergency order on the market to “a nuclear bomb.

“That term was used in a meeting the Business Conduct Committee was having with CBOT members,” says Sanner. “They were talking with Cargill and other (commodity companies) about what to do with the ‘Ferruzzi problem.’”

Soybean farmers weren’t the targets of the emergency order, he says. With the emergency order, CBOT was actually after the Ferruzzi concern, an Italian grain trading company that had built up a large futures position in soybeans. Soybean farmers and rural communities were simply victims of the fallout.

In the late 1980s, Ferruzzi bought an American company, Central Soya. That put Ferruzzi in the same commodity big leagues with Cargill, Bungee and other major players.

Ferruzzi was steadily buying soybeans and saw a low supply of soybeans in 1989 as a result of the 1988 drought. Cargill, meanwhile, was shorting the market and “had gotten way out of position on their shorts. They kept selling and selling hoping the market would go down,” says Sanner.

Cargill, in a bad spot, eventually sent representatives to CBOT and began pressuring officials there. “We’ve got minutes and hand-written notes from those meetings. One of the Cargill executives, Hal Hanson, was also a member of CBOT. He met with both the CBOT chair and president asking for help with the Ferruzzi problem. They talked about punishing Ferruzzi.”

Shortly thereafter, the emergency order was issued, and Ferruzzi was forced to liquidate the long contracts it was holding. Ferruzzi was told to dispose of 20 percent of their holdings per day until they were gone. As a result, prices plummeted.

CBOT attorneys maintain rain in the Midwest and the Brazilian crop coming into the market caused the price declines. CBOT also claims it had no choice but to issue the emergency order.

“I don’t think any reasonable person believes soybean prices can go from $7.50 to $5.50 at a time when some experts were expecting prices to reach $9.50 or higher,” says Sanner. “We had a 12-year-low supply of beans! It’s disingenuous of CBOT to claim their order caused no damage to the market. Of course it did, and we’ve got experts to prove it.

“CBOT had other avenues to pursue besides that order – they didn’t have to do it. And there was a conspiracy not only to do it but also to cover it up once they did. We’re going to prove all that.”

e-mail: dbennett@primediabusiness.com