EDUCATORS ’ PERSPECTIVE
warning that pushed the price of onions up and allowed him to profit from onion futures he had purchased .
The unimpressive 1955 onion crop gave Kosuga and Seigel a perfect opportunity to corner the market . Kosuga ’ s large onion storage facility on his New York farm began to fill with onions while Seigel bought and stored onions in Chicago . They succeeded in controlling 98 % of the onion market .
In late November and early December , the two schemers met with a small group of onion growers in Chicago . They insisted that the growers buy a significant portion of their onion hoard and threatened to dump all of their onions on the market if the growers refused to cooperate . The group ultimately agreed to purchase 265 carloads for around $ 168,000 , far less than the $ 500,000 worth of onions Kosuga and Seigel had hoped to unload on the hapless onion farmers . The growers thought their onion purchase came with an agreement from Kosuga and Seigel to continue buying onions in support of the current futures price , but the devious duo doublecrossed them and began selling onions and March onion futures soon after the bargain was made .
Selling or shorting onion futures contracts obligated Kosuga and Seigel to sell thousands of pounds of onions at an agreed upon price in March of 1956 . According to the Commodity Exchange Authority , by February 6 , 1956 , Kosuga and Seigel had contracted to sell 1,148 carloads of onions in March at a price of $ 1.02 per bag . This translated to immense profits as onion futures prices plummeted .
On Thursday , March 15 , 1956 , the March onion futures contract expired at a closing price of 15 cents with a low for the day of a mere 10 cents per 50-pound bag . Although Kosuga and Seigel made huge profits on the double-cross , the onion growers were now faced with ridiculously low prices for their new onion crop . Many angrily plowed onions back into the soil rather than harvest them . At 10 or 15 cents a bag , onions in a 50-pound bag were worth less than the bag itself , which cost 20 cents .
Some enterprising souls profited by buying bags of onions , discarding the onions and selling the bags . One Illinois
farmer bought bags of onions , used the onions for fertilizer and then sold the bags . Financial journalist Bob Tamarkin tells the story of Chicago dentist Ralph Hershman , who , on the advice of his broker , took delivery of 30 carloads of yellow globe onions . Hershman thought a carload of onions would fill the trunk of an automobile . According to Tamarkin , “ His face turned white , his mouth dropped open when he realized a carload meant boxcar .” The good dentist reportedly cried for 15 minutes . “ It may have been the first time in history ,” observed Tamarkin , “ someone cried just from looking at onions .”
Michigan onion farmer Veril Baldwin was in a good position to do something about the onion shenanigans . Baldwin was not only one of the irate growers who purchased onions under duress from Kosuga and Seigel in late 1955 , he was also president of the National Onion Association . At the association ’ s convention on December 3 , 1955 , members endorsed the idea of legislation that would ban all futures trading in onions .
Baldwin also had the ear of Michigan Representative Gerald R . Ford , who sponsored a bill to eliminate onion futures . The National Onion Association kicked into high gear , lobbying Congress to pass Ford ’ s bill , and firing up its members . In its February 12 , 1957 newsletter , the association declared : “ The only remedy for the evils in onion futures trading is the elimination of onions from the futures boards . You , your neighbors , everyone in the onion industry must work — now .”
The bill gained support in the House and the Senate , and both eventually passed it . President Eisenhower signed it into law on August 28 , 1958 . At first , the Merc vowed to fight the Act in court , but they decided not to contest it based on advice from legal scholar Archibald Cox . 5
The Merc limped along for several years hoping to find a way out of the doldrums imposed upon it by the ban on onion futures . In the 1960s , it would find the answer in the most unlikely of places when bacon saved the Merc .
Brian Grinder is a professor at Eastern Washington University and a member of Financial History ’ s editorial board . Dr . Dan Cooper is the president of Active Learning Technologies .
Sources “ Farmer ’ s Modest Onion Patch Grows to
12-Business Empire .” The Record , 47 . 1964 .
Lambert , Emily . The Futures : The Rise of the Speculator and the Origins of the World ’ s Biggest Markets . Basic Books : New York . 2011 .
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