"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."<p>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.
Planet Money podcast a covered this topic a few months ago:<p><a href="https://www.npr.org/sections/money/2015/10/14/448718171/episode-657-the-tale-of-the-onion-king" rel="nofollow">https://www.npr.org/sections/money/2015/10/14/448718171/epis...</a>
The other notorious carve-out is box office futures. Read more about the ban here: <a href="https://www.theringer.com/movies/2018/11/15/18091620/box-office-futures-dodd-frank-mpaa-recession" rel="nofollow">https://www.theringer.com/movies/2018/11/15/18091620/box-off...</a>
as an indian, this bit was particularly fascinating:<p>> 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.<p>in india, onions are so vital a staple that the onion price is a major economic index. see <a href="https://economictimes.indiatimes.com/markets/commodities/news/onion-index-falls-by-11/articleshow/65653094.cms" rel="nofollow">https://economictimes.indiatimes.com/markets/commodities/new...</a> for instance.
Another interesting topic in the derivatives markets: <a href="https://en.wikipedia.org/wiki/Weather_derivative" rel="nofollow">https://en.wikipedia.org/wiki/Weather_derivative</a>.<p>Basically you buy futures or options on the temperature, rainfall, and cloud cover. Super interesting!
>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<p>...and we all know what happened to the FCOJ market in 1983.
There seems to have been some wider failures in the market here. The article states that prices rose elsewhere, whilst crashing in Chicago. Why did no one arbitrage. Why did the farmers feel pressured to buy the oversupply<i>. Cornering the market like this /shouldn't/ have worked.<p></i>I'm actually kind of surprised there isn't some law somewhere banning primary producers buying their own product.
Think about a mine buying in raw ore and then selling it, could make the mine look more successful than I actually was. Considering investment by the elite before the 19th century would have been direct into these kinds of operations, I'm surprised enough weren't burned to push for a law change.
On a side note, I hovered the cursor over "Onion" and was surprised to find out it's classified as a fruit.<p><a href="https://en.wikipedia.org/wiki/Onion" rel="nofollow">https://en.wikipedia.org/wiki/Onion</a>
So I already knew about this from before, but one thing I never understood was instead of banning it outright, why not just put in a rule that says your futures are invalid if you control X percent of the underlying asset?
You have to wonder why the lawmakers didn't use the same logic on all other products. Or at least ags.<p>Corners happened again later, famously on silver with the Hunt brothers.
Check out Vincent Kosuga’s Wikipedia page. Very interesting dude<p><a href="https://en.m.wikipedia.org/wiki/Vincent_Kosuga" rel="nofollow">https://en.m.wikipedia.org/wiki/Vincent_Kosuga</a>
This feels like something Rand Paul would dig up. It's pretty much the ultimate example of stupid, meaningless regulation. Gotta protect that crucial onion market. Definitely an enumerated power.