THE ONION CONUNDRUM

July 9, 2008

Before the U.S. Commodity Futures Trading Commission starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings a commodity not in today's news: onions, says Fortune magazine.

  • Onions are the only commodity for which futures trading is banned.
  • Back in 1958, onion growers convinced themselves that futures traders (and not the new onion farms sprouting up in Wisconsin) were responsible for falling onion prices.
  • They lobbied Gerald Ford to push through a law banning all futures trading in onions, and the law still stands.

Yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics' belief that futures trading diminishes extreme prices, says Fortune.

  • Since 2006, oil prices have risen 100 percent and corn is up 300 percent.
  • Meanwhile, onion prices soared 400 percent between October 2006 and April 2007, only to crash 96 percent by March 2008 and then rebound 300 percent this past April.

The volatility has been so extreme that many onion growers now believe the onion market would operate more smoothly if a futures contract were in place, says Fortune.

Source: Jon Birger, "The Onion Conundrum," Fortune, July 7, 2008.

For text:

http://money.cnn.com/2008/06/27/news/economy/The_onion_conundrum_Birger.fortune/ 

 

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