EDUCATORS ’ PERSPECTIVE
Hold the Onions , Please ! The Short History of Onion Futures
By Brian Grinder and Dan Cooper
Onions can be sliced , diced , fried , sautéed , boiled , baked , grilled , roasted or pickled , but they can ’ t be traded on futures markets . The Onion Futures Act of 1958 permanently banned this malodorous futures contract from trading on organized exchanges in the United States . The ban dealt a near fatal blow to the Chicago Mercantile Exchange ( the Merc ), which , at the time , relied on futures contracts for eggs and onions as its primary means of survival .
To make matters worse , the traditional seasonal cycle of egg production began to change during the 1950s when new production methods and transportation innovations led to a more consistent production of eggs throughout the year . The steadier annual supply stabilized egg prices and reduced the need for egg futures . Thus , the ban on onions left the Merc at the mercy of a single eggshellfragile commodity . 2
The Merc was formed in 1919 as a replacement for the Chicago Butter and Egg Board . Despite the name change , butter and egg futures continued to be the Merc ’ s mainstay . There were attempts to expand into other commodities — such as turkeys , potatoes and apples — but nothing was as successful as eggs and butter . Price controls during World War II sounded the death knell for butter futures , especially when the Dairy Products Marketing Association continued to support price controls for butter after the war ended .
Onion futures began trading on the Merc in September 1942 . The United States entered World War II in late 1941 and was soon engaged in the Pacific and European theaters . As in World War I , the federal government enacted price controls on various food items creating havoc in the futures markets , whose very reason for existing was to help hedgers reduce price uncertainty . Onions , by and large , escaped federal oversight providing the Merc with
Commodity : ( 1 ) A commodity , as defined in the Commodity Exchange Act , includes the agricultural commodities enumerated in Section 1a ( 4 ) of the Commodity Exchange Act , 7 USC 1a ( 4 ), and all other goods and articles , except onions as provided in Public Law 85-839 ( 7 USC 13-1 ), a 1958 law that banned futures trading in onions , and all services , rights and interests in which contracts for future delivery are presently or in the future dealt in ; ( 2 ) A physical commodity such as an agricultural product or a natural resource as opposed to a financial instrument such as a currency or interest rate .
a storable 3 commodity whose price fluctuated with the supply of onions . Seasonal production differences between eggs and onions also helped stabilize trading activity throughout the year .
“ Onions ,” writes futures historian Emily Lambert , “ were fated to trade in Chicago . The name of the city was derived from shikaakwa , the Native American word for a stinky , wild leek plant that grew around the river , although the Merc ’ s members preferred to trade the hard and pungent variety that farmers grew on small plots from Minnesota to New York .”
It was relatively easy to corner markets on the Merc given the small quantities of the commodities traded there , and it happened with regularity . Future Merc
— CFTC definition of a commodity 1
chairmen Leo Melamed quipped , “… on any given weekend a couple of housewives could get together and corner the [ egg ] market .” Merc traders took these frequent attempts at market manipulation in stride , but commodities producers were not amused .
An especially egregious attempt to corner the onion market happened in the fall of 1955 , when Sam Seigel and Vince Kosuga began buying onions and November onion futures . 4 Seigel owned a produce company in Chicago and actively traded onion futures on the Merc . Kosuga was an onion farmer from the Catskills region of New York whose earlier unsuccessful foray into wheat futures led to financial difficulties and a promise to his wife , Polly , never to trade futures again . But the trading bug had bitten hard , and he was soon trading onion futures .
Kosuga began his onion empire with 12.5 acres of “ muck ,” which he purchased in 1937 for $ 100 down . By 1964 , he was grossing $ 5 million a year and was one of the largest individual onion producers in the United States . His intimate knowledge of onions , along with his audacity , gave him a huge advantage trading onion futures . Lambert describes Kosuga as “ one of the liveliest characters the Merc had ever seen .” This gun toting , plane crashing purveyor of onions once bribed a local weather bureau to issue a false frost
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