How One Man Tried To Takeover The Onion Industry — and Nearly Succeeded

How One Man Tried To Takeover The Onion Industry — and Nearly Succeeded

An ingenious scheme that has impacted many businesses

How One Man Tried To Takeover The Onion Industry — and Nearly Succeeded

Photo by Ahmer Kalam on Unsplash

BitCoin. GameStop Shares. Onions.

Pick the odd one out.

I’m assuming seeing I gave a massive clue in the headline, you all answered correctly and said onion. But onions may not be the odd one out for the reasons you think.

BitCoin has made — and lost — fortunes and has led to a bandwagon of crypto evangelists. GameStop shares went through a period of insane rises and drops thanks to an inspired group of Reddit enthusiasts.

Onions have also made people millionaires and cost them their houses.

However, unlike BitCoin and GameStop — and pretty much any investment you can think of, the price of onions was manipulated to such an extent that the U.S. Senate had to intervene.

In 1958, they enforced an act to prohibit trading in onion futures on commodity exchanges.

Never has there been more interest in the onion.

It was 1955, and Vince Kosuga was an onion farmer in New York with an audacious plan.

Kosuga wanted to be more than an onion farmer. He wanted to be an onion mogul — controlling the entire onion industry in the United States. The King of the Onion World.

This onion farmer wasn’t satisfied with just owning the onions he personally grew. He wanted to own the onions other farmers grew. Both now and in the future.

To achieve this, he needed to manipulate the futures market.

A simple introduction to futures.

Futures contracts are made in an attempt by producers and suppliers of commodities to avoid market volatility and lock in prices. A buyer and a seller agree on a contract price for an item at a future date. Initially, futures were used for agricultural products but now can apply to financial products, shares, foreign currency, and interest rates.

The buyer of the future product is said to be the long position holder, and the selling party is said to be the short position holder.

Kosuga wanted to control the price of onions by buying as many future onions as possible. So he partnered up with a futures trader in Chicago, Sam Siegel, and effectively entered into contracts with onion farmers to buy their onions.

Soon the two men had cornered the onion market.

By the winter of 1955, onion futures contracts were the most traded product on the Chicago Mercantile Exchange. They accounted for 20% of its trades, and the two men owned 98% of the available onions in Chicago. Kosuga had to build a warehouse to hold the 30 million pounds of onions he now owned. There were so many onions; it took 928 carloads to transport all the onions to Kosuga’s farm in New York State.

With a monopoly over onions, Kosuga and Siegel could set the price, and they raised the price of onions to $2.75 a bag. At the same time, the duo began selling their onions on the futures market — taking a short position in order to lock in their profits.

It was now time for the next part of their plan.

In March of 1956, Kosuga started the second part of his scheme.

He began flooding the Chicago market with his onions. There were so many of them that the loading docks were full of 50-pound bags of onions, and boxcars loaded with onions filled the railyard.

Not content with having onions blocking all Chicago transportation, Kosuga wanted to give the illusion there was a never-ending supply.

To do this, he would ship out any old onions, wash and repack them and then them back to Chicago. This gave the impression there was a never-ending supply of fresh onions arriving in the city.

It appeared that onions had invaded Chicago.

This ridiculous oversupply of onions drove the price down to just 10 cents a bag. The mesh bag they were stored in cost 20 cents to put that price into perspective.

All the traders who had taken a long position — i.e., agreed to buy onions from Kosuga at $2.76 a bag had lost a bundle. They were stuck with onions of no value, and many of them were dumped in the Chicago River.

While the traders were crying, it was tears of joy for Kosuga. His onion futures scheme made him $8.5 million. That is the equivalent of $87 million in today’s figures.

Not bad for onions.

Many onion farmers across the country went bankrupt due to this scheme, and complaints were made to Congress. The Commodity Exchange Authority said Kosuga and Siegel had “a conspiracy to depress the prices in order to cover their short position.”

Kosuga was unrepentant and believed he had done nothing wrong, saying, “if it’s against the law to make money, then I’m guilty.”

There was an investigation, and the U.S. Senate Committee on Agriculture and House Committee on Agriculture held hearings on the matter.

Gerard Ford — future U.S. President, but at the time a Congressman, sponsored a bill known as the Onion Futures Act, which banned futures trading on onions.

It’s the only agricultural product that is illegal to trade futures in. To this day, it makes it harder for onion farmers to plan their crops and lock in prices accurately.

Kosuga returned to New York, where he opened a restaurant next to his farm ironically called The Jolly Onion Inn. He also focused heavily on philanthropy, so I guess the onion profits went to some good use in the end.

What do onions and movies have in common?

Well, since 2010, they have had at least one thing. In 2010, Congress amended the Onions Futures Act to add one more futures contract that could not be traded: Hollywood box office receipts.

No contract for the sale of motion picture box office receipts (or any index, measure, value, or data related to such receipts) or onions for future delivery shall be made on or subject to the rules of any board of trade in the United States.”

This means you can’t bet on whether a movie based on the Onion Entrepreneurs will be a box office hit.

I’d take a long position on that.

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Author: Ash Jurberg