
The Onion Futures Act - gkaemmer
https://en.wikipedia.org/wiki/Onion_Futures_Act
======
Matticus_Rex
"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.

~~~
protomyth
Yep, for a decent explanation of hedging ISU has a page
[https://www.extension.iastate.edu/agdm/crops/html/a2-60.html](https://www.extension.iastate.edu/agdm/crops/html/a2-60.html)

Note the futures market requirement for hedging.

~~~
S_A_P
Work in energy and commodity trading. This is probably one of the best
explanations to what is at best a very confusing concept. Thanks for posting

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wcfields
Planet Money podcast a covered this topic a few months ago:

[https://www.npr.org/sections/money/2015/10/14/448718171/epis...](https://www.npr.org/sections/money/2015/10/14/448718171/episode-657-the-
tale-of-the-onion-king)

~~~
anitil
Such a good episode!

Planet Money is so good that I've worked my way through 10 years of back-
episodes over the last year or so, it's one of few podcasts which is worth
doing that.

~~~
jedberg
Try Freakonomics if you haven't already. I did the full back catalog on both.

~~~
taylorfinley
At the risk of derailing things and spiraling into off-topic chatter... is
anyone else really bothered by the background music on the Freakonomics
podcast? They seem to use the same tracks every episode. Ten years ago that
wasn't particularly grating, but as production values in podcasting have gone
up listening now I feel like I'm hearing a marketing video thrown together on
fiverr.

~~~
kwhitefoot
I'm bothered by the fact that they have background music at all. I listen to a
lot of BBC podcasts and none of them have background music. Only a few use
music at all, mostly as a kind of punctuation and emphasis for dramatic parts.

I find most podcasts that I have tried that originate in the US unlistenable
because of the background music.

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pfletcherhill
The 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...](https://www.theringer.com/movies/2018/11/15/18091620/box-office-
futures-dodd-frank-mpaa-recession)

~~~
jedberg
Interesting! I'd never heard of this. It look like their arguments against it
are about the same as the arguments against variable pricing for movies -- the
price would reflect overall sentiment and influence the viewership. Why would
you go see a movie that is only $1. Clearly no one else wants to see it. In
the same vein, why would you see a movie with a bunch of shorts on it?

~~~
pfletcherhill
>...why would you see a movie with a bunch of shorts on it?

If you were long, among other reasons.

~~~
OscarCunningham
For sufficiently bad movies, you might get _paid_ to watch them by the people
betting on their success.

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zem
as 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...](https://economictimes.indiatimes.com/markets/commodities/news/onion-
index-falls-by-11/articleshow/65653094.cms) for instance.

~~~
jpatokal
Onions are pretty fundamental to Western cooking as well, but they're not a
_staple_ in the sense that people will starve if they're unavailable, the way
potatoes or wheat are.

~~~
ryan-allen
I've always thought staples were the bulk of the energy content in cultures,
i.e. rice, bread from wheat/corn/etc, potatoes. I checked anyway, there's a
bunch more I hadn't considered!

[https://en.wikipedia.org/wiki/Staple_food](https://en.wikipedia.org/wiki/Staple_food)

~~~
ahazred8ta
Yes, but when you get your vitamins from one main vegetable, it can be a
public health problem if a moth eats the whole crop several years in a row.
NIGERIA has been limping along since 2016.

#TomatoEbola

[https://www.npr.org/sections/goatsandsoda/2016/05/26/4795176...](https://www.npr.org/sections/goatsandsoda/2016/05/26/479517680/a-moth-
nicknamed-tomato-ebola-ravages-nigerias-tomatoes)

------
pwaivers
Another interesting topic in the derivatives markets:
[https://en.wikipedia.org/wiki/Weather_derivative](https://en.wikipedia.org/wiki/Weather_derivative).

Basically you buy futures or options on the temperature, rainfall, and cloud
cover. Super interesting!

~~~
ryan-allen
This is an actual thing??!

~~~
F_r_k
If you don't understand it, why have you got an opinion of it ?

~~~
ryan-allen
I don't have an opinion of it! I did search on the topic and found that it is
indeed a thing, and the point of it is for farmers to hedge against bad
weather. I don't understand it completely but it does seem to make sense in
terms of stability. My ??! came across as indignant but it was honest! I
watched a Khan video about how options improve stability also, it seems
counter-intuitive but my grasp so far is that these instruments are good for
stability and stability is important.

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fatnoah
>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.

~~~
jpatokal
If this didn't ring a bell:
[https://en.wikipedia.org/wiki/Trading_Places](https://en.wikipedia.org/wiki/Trading_Places)

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byron_fast
Mennonite joke: "Many young Mennonites are surprised to learn how many recipes
contain only onions and fat."

Onions are important.

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benj111
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 _.
Cornering the market like this /shouldn't/ have worked.

_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.

~~~
golergka
How do you differentiate between a producer and a consumer? What if a mine is
bought by a vertically integrated company that both mines the ore and then
processes is as well - and because of, say, some unpredicted difficulties in
different parts of it business, has sometimes buy additional ore (to keep
smelters running), and sometimes has to sell it because it mined too much?

~~~
benj111
How do you differentiate between a patent troll and a company just trying to
protect its IP? You do make a good point though.

I'm not suggesting the legislation would be a good idea, certainly not in the
modern day. It just occurred to me that this would be an indicator of fraud,
and from what I know about the history of publicly traded companies and the
class of people who were investing in companies etc, I'm surprised this wasn't
a law.

The article states that traders thought there was a glut because the onions
were shipped out and back in again, in the 1950s. It would have been even
easier 50-100 years earlier.

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lazycouchpotato
On a side note, I hovered the cursor over "Onion" and was surprised to find
out it's classified as a fruit.

[https://en.wikipedia.org/wiki/Onion](https://en.wikipedia.org/wiki/Onion)

~~~
andybak
"Intelligence is knowing tomatoes are a fruit. Wisdom is knowing not to put
them in your fruit salad"

~~~
BlackFly
Unless you are talking botany, calling a tomato a fruit is falling for the
fallacy of equivocation and too many people do this and have the pretension
that they are being smart. The word "fruit" has multiple definitions, a tomato
is a fruit by definition 1, but not a fruit by definition 2.

What most people understand by the word fruit is definition 2.

~~~
mac01021
What's definition 2?

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jedberg
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?

~~~
Kalium
A requirement like that incentivizes people to find a way to work around it
and requires enforcers to be able to prove someone did indeed own X percent.
It also makes it harder to pursue cabals that collectively corner a market
without any entity involved being over the threshold.

In many ways, it's easier enforcement-wise to just ban the thing, especially
if you don't think it's actually important to have in the first place.

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lordnacho
You 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.

~~~
protomyth
Because most ags, particularly the farmers themselves, started hedging their
own crops to make sure they had some predictability. Futures are an important
tool these days.

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rat87
Someone listed to NPR's Planet Money Onion King episode

[https://www.npr.org/templates/transcript/transcript.php?stor...](https://www.npr.org/templates/transcript/transcript.php?storyId=448718171)

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21
Laws should have an expiration date. Otherwise in 100 years there will be 1
million laws.

~~~
time-domain0
Laws need diffs and refactoring.

~~~
flukus
I'd like unit tests too. Done in TDD fashion by the creators of the law, not
the ad-hoc edge case finding of the precedent system.

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mises
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.

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RyanShook
Check out Vincent Kosuga’s Wikipedia page. Very interesting dude

[https://en.m.wikipedia.org/wiki/Vincent_Kosuga](https://en.m.wikipedia.org/wiki/Vincent_Kosuga)

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glup
Man I thought that guy hawking onion futures on BART seemed sort of sketchy.

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deytempo
Who else initially thought this was going to be about TOR?

~~~
time-domain0
I was thinking The Onion was being banned because it was predicting the
future.

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jeffrallen
All markets are free, but some markets are freer than others.

