Onion trading :
Onion futures trading began on the Chicago Mercantile Exchange in the mid-1940s as an attempt to replace the income lost when butter futures contract ceased. By the mid-1950s, onions futures contracts were the most traded product on the Chicago Mercantile Exchange. In 1955, they accounted for 20% of its trades.
Market manipulation :
In the fall of 1955, Seigel and Kosuga bought enough onions and onion futures so that they controlled 98 percent of the available onions in Chicago. Millions of pounds (thousands of tonnes) of onions were shipped to Chicago to cover their purchases. By late 1955, they had stored 30,000,000 pounds (14,000,000 kg) of onions in Chicago. They soon changed course and convinced onion growers to begin purchasing their inventory by threatening to flood the market with onions if they did not. Seigel and Kosuga told the growers that they would hold the rest of their inventory in order to support the price of onions.
As the growers began buying onions, Seigel and Kosuga purchased short positions on a large amount of onion contracts.They also arranged to have their stores of onions reconditioned because they had started to spoil. They shipped them outside of Chicago to have them cleaned and then repackaged and re-shipped back to Chicago. The new shipments of onions caused many futures traders to think that there was an excess of onions and further drove down onion prices in Chicago. By the end of the onion season in March 1956, Seigel and Kosuga had flooded the markets with their onions and driven the price of 50 pounds (23 kg) of onions down to 10 cents a bag. In August 1955, the same quantity of onions had been priced at $2.75 a bag. So many onions were shipped to Chicago in order to depress prices that there were onion shortages in other parts of the United States.
Seigel and Kosuga made millions of dollars on the transaction due to their short position on onion futures. At one point, however, 50 pounds (23 kg) of onions were selling in Chicago for less than the bags that held them. This drove many onion farmers into bankruptcy. A public outcry ensued among onion farmers who were left with large amounts of worthless inventory. Many of the farmers had to pay to dispose of the large amounts of onions that they had purchased and grown.
Regulatory action :
Soon they launched an investigation and the U.S. Senate Committee on Agriculture and House Committee on Agriculture held hearings on the matter.
During the hearings, the Commodity Exchange Authority stated that it was the perishable nature of onion which made them vulnerable to price swings. Then-congressman Gerald Ford of Michigan sponsored a bill, known as the Onion Futures Act, which banned futures trading on onions. 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. The president of the Chicago Mercantile Exchange, E.B. Harris, lobbied hard against the bill. Harris described it as "Burning down the barn to find a suspected rat". The measure was passed, however, and President Dwight D. Eisenhower signed the bill in August 1958.
Source : http://en.wikipedia.org/wiki/Onion_Futures_Act
