You Can’t Buy Onions
Learn how two guys ruined onion buying for everyone.
Did you know you can’t buy onions? Yeah, you know, those stinky, layered vegetables that Shrek uses to describe himself. You are not legally allowed to buy them. Well, you’re not legally allowed to buy them in the future. No, that still isn’t right. You can’t buy onion futures. Hold on, we’ll explain!
What is a future?
Futures are an investment thing. Like stocks, buying a part of a company, or bonds, loaning a company money, futures are something you can invest in.
But unlike stocks and bonds, futures don’t exist yet. You can buy futures in almost any commodity—any raw material or farm products. That is, except onions. You cannot buy onion futures. And here is why…
It’s the fault of two guys.
Yes, two guys are to blame for no one being allowed to buy onion futures anymore. Back in 1955, two guys got the idea to buy all the onions they could on the Chicago Mercantile Exchange—The Wall Street of commodities exchanges.
And they did it; Sam Siegel and Vincent Kosuga managed to buy up almost 98% of the country’s onions in 1955. They owned almost every onion grown, or to be grown, in the country.
So, what’s the problem?
Farmers usually like selling on futures. They know how much they’ll make for every acre they plant before they put the first seed in the ground. It guarantees the farmer a paycheck by paying them upfront for their work and what they grow.
The problem was that Siegel and Kosuga controlled the whole market. If you were a farmer wanting to plant onions next season, you had to buy from Siegel and Kosuga. Suddenly the money you made by selling the futures to them was gone because they dictated the prices.
This is market manipulation. It’s illegal to do things to change the prices of stocks or goods that are not natural. Siegel and Kosuga caused a shortage of onions simply because they wanted to keep the prices as high as possible. They let onions rot in warehouses knowing they’d make more by driving up demand.
Congressman Gerald Ford, the future president, sponsored a bill to ban the trade of onion futures. There was pushback from futures traders and some farmers, but Dwight D. Eisenhower signed the bill in 1958.
Part of the reason the law passed was onions were seen as a rather stable commodity. Meaning, onions usually cost about the same year after year. That isn’t true anymore, and there is some push to overturn the ban on onion futures.
What do we learn from this?
One, buying up the country’s onion supply is oddly going to upset a lot of people. Two, a decision made in the 1950s might not make sense today, and it’s okay to re-think choices that were made in the past and make a new decision on how those problems should be handled. Like onions, life has layers.