CORNERING THE ONION MARKET...AND GETTING AWAY WITH IT
A “future” is a contract to buy a commodity at a
future date for a price agreed upon today. The buyer hopes the market
price will go up and he’ll save money, while the seller usually wants
the price to go down so he’ll make a profit. Kosuga became dangerously
good at selling futures and ensuring that onion prices would
consequently plummet, making a fortune in the process.
There was more money to be made selling future onions than planting present ones.
This small-built man had a larger-than-life ambition and a significant advantage over other onion traders: He was a farmer.
Growing onions on his New York farm in the 1900s, he had learned
everything there was to know about the stinky vegetable, including that
there was more money to be made selling future onions than planting
present ones. His first attempts at trading were a failure though. After
nearly going bankrupt, he even promised his wife he would stop, but
Kosuga just couldn’t keep himself away from the floors of Chicago Mercantile Exchange.
A group of traders at the Chicago Mercantile Exchange in the 1940s.
SOURCE
Herbert/Hulton Archive/Getty
Onions were a potentially lucrative market because,
given that they are typically planted and harvested at specific times
during the year, their storability was very limited and their price
could change wildly from one day to another. Kosuga recruited the help
of Sam Siegel, who owned cold-storage facilities outside Chicago — where
he stored and distributed onions — and began buying all the onions he
could find and shipping them to him. Soon both men controlled such a
large portion of the local onion stock that they essentially cornered
the market, enabling them to manipulate the price. And that’s what they
did.
Onions suddenly were worth less than the bags they were being sold in, while carts of them were being dumped in Lake Michigan.
Once Kosuga needed the price to go up to make a
profit but production was going well, so he bribed an official at the
Chicago weather bureau to issue a severe frost warning.
That sent buyers into a frenzy for fear of onion crops failing, driving
up prices and swelling Kosuga’s bank account. But their biggest and
sneakiest win happened after Kosuga and Siegel bought and stored 30
million pounds of onions. They proceeded to flood the market, bringing
down the price of a 50-pound bag of onions from $2.55 in August 1955 to 10 cents
in March 1956. That meant onions suddenly were worth less than the bags
they were being sold in, and, while carts of them were being dumped in
Lake Michigan, the two traders were counting their wins.
Of course, this shady move did not go unnoticed. The $1.5 million scheme led to serious governmental scrutiny and the passing, in 1958, of the Onion Futures Act,
banning the trade of future contracts on onions. The investigation also
found both men guilty of price rigging; Kosuga’s registration as a
floor broker was revoked, and he and Siegel were banned from trading for
10 months.
Even so, many people continued to perceive of Kosuga as an outstanding
member of society and a philanthropist because he gave much of his money
to Catholic charities and even had private audiences with three popes. Kosuga
did not take the money and flee to a tropical island but instead stayed
in his community of Pine Island, New York, where, in 1987, he was voted
citizen of the year.
The once poor farmer turned millionaire ended his career as the owner
and chef of a restaurant called — naturally — The Jolly Onion Inn.
Despite Kosuga’s retirement from the trading floors,
his strategies are still being studied today, and many ambitious and
dishonest people have followed in his footsteps. Like Anthony “Tino” De Angelis,
a trader who, in the ’60s, managed to make millions by cornering the
soybean oil market, before the market collapsed and De Angelis landed in
jail. That’s how a farmer taught America there’s nothing you can’t
speculate on — except onions, that is
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