Vincent Kosuga was a farmer from New York who had a 5,000-acre farm. He grew onions and some other vegetables, but onions are the star of this story.
Vincent got involved in the commodity markets, trading wheat and losing his stake. He promised his wife he would not trade more but instead got into trading what he knew: onions. Onions were the most traded commodity on the Chicago Mercantile Exchange at the time, accounting for 20% of the trades in 1955. This is due in part to the fact that onions have limited storability, so their price would fluctuate more than most commodities. This meant more potential for profit.
Kosuga was friends with Sam Siegel, who also traded onions and had a produce company. Together, they decided that they could corner the market in Onion Futures with their money and storage capacities.
Cornering The Onion Futures Market
By the fall of 1955, they had 30 million pounds of onions in Chicago, 98% of the market. The two of them threatened growers, telling them to buy their onions or they would flood the market. This drove up prices some, and Vincent and Sam bought short contracts on them.
On top of this, they sent the onions away to be cleaned to prevent spoiling. When the huge shipments came back to Chicago, this gave traders the false impression of extra supply, lowering prices. They flooded the market with onions, to the chagrin of the growers. These actions drove prices from $2.75 to 10 cents per 50 lb bag. Sam and Vincent made huge profits on their shorts.
This caused the government to pass the Onion Futures Act, which banned onion futures, despite traders’ protests. To this day, it is illegal to trade onion futures. When you eat some crispy onion rings, you can thank these infamous traders that the prices will be the same next time.