Mark Gritter (markgritter) wrote,
Mark Gritter

No Futures Contracts on Onions

Juliet Lapidos of Slate explains why derivatives regulation starts in the Senate Committee on Agriculture, and mentions the one thing that you still can't hedge:

It wasn't until 1974, with the Commodity Futures Trading Commission Act, that Congress expanded the definition of a commodity beyond agricultural products. The term would now cover "all other goods and articles, except onions … and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." The law made it explicitly OK to trade financial instruments, or pretty much anything else—except onions—and at the same time brought all this nonsense under the jurisdiction of a newly created federal commission. (No one was permitted to sell onion futures under any circumstances: a ban dating back to 1958, still in place to this day. That's because onions are highly perishable and thus arguably more vulnerable to price manipulation—a slight increase in supply can lead to slashed prices.)

The Onion Futures Act provides a unique natural experiment on the behavior of a commodity market without futures market. A recent 2008 CNN article suggests recent evidence shows the onion market is more volatile than those for other commodities, but other sources say the evidence is mixed. (For example, while the market volatility decreased in the period with active futures trading, it did not increase in the period immediately following the 1958 ban.)
Tags: economics, finance, onions
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