What onions teach us about oil prices
Onions have no futures market, yet their recent price volatility makes the swings in oil and corn look tame.
(Fortune Magazine) -- Before the U.S. Commodity Futures Trading Commission starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today's news: onions.
The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders (and not the new farms sprouting up in Wisconsin) were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.
And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics' belief that futures trading diminishes extreme price swings. Since 2006, oil prices have risen 100%, and corn is up 300%. But onion prices soared 400% between October 2006 and April 2007, when weather reduced crops, according to the U.S. Department of Agriculture, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April.
The volatility has been so extreme that the son of one of the original onion growers who lobbied Congress for the trading ban now thinks the onion market would operate more smoothly if a futures contract were in place.
"There probably has been more volatility since the ban," says Bob Debruyn of Debruyn Produce, a Michigan-based grower and wholesaler. "I would think that a futures market for onions would make some sense today, even though my father was very much involved in getting rid of it." 
-
Inflation appears less menacing, but the U.S. export boom could soon face strong headwinds. more -
The new Gallardo LP560-4 has a new suspension, better aerodynamics and is more powerful, lighter and fuel-efficient. more
-
A horror movie site and TV channel funded by Sony, Lionsgate and Comcast is attracting Hollywood A-listers and lots of viewers. more -
Wal-Mart and Tiffany are trying to clean up the gold-mining industry. Not everyone is cheering them on. more -
The one bright spot in M&A in 2008 are drugmakers, where giant pharmaceutical companies are paying record amounts for biotechs to replenish their pipelines. more -
David Whitford's first-person account of the damage Hurricane Gustav inflicted on Louisiana businesses. more -
How well prices hold up around New York City could go a long way toward predicting the depth of the bust. more
