The Onion Futures Act
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The Onion Futures Act
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Re: The Onion Futures Act
#2Planet Money podcast a covered this topic a few months ago:
https://www.npr.org/sections/money/2015/10/14/448718171/epis...
Re: The Onion Futures Act
#3"In the 2000s (decade), onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading."
This is the important part -- ag futures are insurance for farmers. You don't have to get it, but it limits your downside when you do, which is extremely important in low-margin, capital-intensive industries like agriculture. Banning the insurance may prevent one-off manipulations and limit the upside captured by speculators, but it also makes the industry much more dangerous, particularly for smaller players.
Re: The Onion Futures Act
#4"In the 2000s (decade), onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading." This is the important part -- ag futures are insurance for farmers. You don't have to get it, but it limits your downside when you do, which is extremely important in low-margin, capital-intensive indust…
Yep, for a decent explanation of hedging ISU has a page https://www.extension.iastate.edu/agdm/crops/html/a2-60.html
Note the futures market requirement for hedging.
Re: The Onion Futures Act
#5The other notorious carve-out is box office futures. Read more about the ban here: https://www.theringer.com/movies/2018/11/15/18091620/box-off...
Re: The Onion Futures Act
#6Planet Money podcast a covered this topic a few months ago: https://www.npr.org/sections/money/2015/10/14/448718171/epis...
Thanks for this. I was curious about the details and the podcast (I read the transcript) explains all of it.
I was wondering how they made so much money and why it doesn't happen anymore. Turns out the initial cornering of the market was done in secret at a standard price. Nowadays buying at such scale secretly is impossible, so the price goes up and makes cornering the market prohibitively expensive.
Re: The Onion Futures Act
#7Another interesting topic in the derivatives markets: https://en.wikipedia.org/wiki/Weather_derivative.
Basically you buy futures or options on the temperature, rainfall, and cloud cover. Super interesting!
Re: The Onion Futures Act
#8You have to wonder why the lawmakers didn't use the same logic on all other products. Or at least ags.
Corners happened again later, famously on silver with the Hunt brothers.
Re: The Onion Futures Act
#9>This led to the emergence of new leadership who pioneered a different strategy, expanding the exchange's traded products to include futures contracts on pork bellies and frozen concentrate orange juice
...and we all know what happened to the FCOJ market in 1983.
Re: The Onion Futures Act
#10as an indian, this bit was particularly fascinating:
> The bill was unpopular among traders, some of whom argued that onion shortages were not a crucial issue since they were used as a condiment rather than a staple food.
in india, onions are so vital a staple that the onion price is a major economic index. see https://economictimes.indiatimes.com/markets/commodities/new... for instance.