Onion Futures Act

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Passed on August 28, 1958, the Onion Futures Act (7 U.S.C Chapter 1 § 13-1) banned the trading of futures contracts on onions in the United States.[1] The law was the first (and only as of 2010) to ban the trading of futures contracts for a specific commodity.[2] Violation of the law is considered a misdemeanor punishable by a fine of up to $5,000.[3]

History

On June 18, 1956, the Commodity Exchange Authority charged Vincent W. Kosuga, Sam S. Siegel and National Produce Distributors with manipulating (or attempting to manipulate) three contract months of onion futures. The charges included attempted upward manipulation and price stabilization manipulation, in addition to successful downward manipulation.[4][5]

Following the charges, Congress held hearings to consider banning onion futures trading because of the alleged influence of market manipulators. Led by Michigan Congressman (and future President of the United States) Gerald Ford, the law passed in 1958 and remains in effect as of 2013.[6]

Controversy

A 1963 study, published in the Journal of Farm Economics by Stanford University professor Roger Gray, compared prices before and after the ban and concluded futures contracts actually helped to stabilize prices.[7] However, a 1973 study, published in the USDA ERS Technical Bulletin by Aaron C. Johnson, concluded that the 1960s, when no futures contracts existed, showed the least volatility in onion prices on record.[8]

The debate persists, as does volatility in onion prices. For example, between October 2006 and April 2007 onion prices increased 400%, decreasing 96% by March 2008 and increasing again by 300% by April 2008.[9]

References

  1. History of the CFTC. CFTC.
  2. The Onion Ringers. Wall Street Journal.
  3. United States Code Title 7,13-1. Violations, prohibition against dealings in onion futures; punishment. Cornell University Law School.
  4. History of the CFTC. CFTC.
  5. The Jewish History of Futures (and Options). The Jewish Daily Forward.
  6. What onions teach us about oil prices. Fortune.
  7. Onions Revisited. Cornell University.
  8. What do onion prices tell us about oil prices?. TIME.
  9. What onions teach us about oil prices. Fortune.