How a glut became a squeeze
In the mid-1950s, onion traders Vincent Kosuga and Sam Seigel built a position in both onions and onion futures. A futures contract is an agreement to buy or sell a commodity later at a price set in advance. By buying large quantities of onions in Chicago, the pair could tighten the supply available in that market and push prices upward. Their futures positions gave them another way to profit from the price movement.
The strategy depended on onions being more than numbers on a trading screen. They are a bulky, perishable crop, and harvests can bring a large supply to market at once. When traders control much of the inventory in a key market, other buyers may have little room to wait for prices to ease. But a squeeze built on stored produce can reverse: new onions arrive, the market’s supply changes, and the value of existing stock can plunge.
Why the price could collapse
Kosuga and Seigel also bet that onion prices would fall. That is what “short-selling” means: selling a contract or other asset in the expectation of buying it back later for less. If prices dropped, the short position could gain value. The traders’ large holdings of onions gave them influence over the physical market, while their futures bets let them benefit from a sharp swing in either direction.
When the price fell, growers and other traders who had counted on higher prices faced heavy losses. The episode made clear that futures trading could affect the market for the actual crop, not just the paper contracts exchanged by speculators.
A law aimed at one crop
Congress responded with the Onions Futures Act of 1958, which barred futures contracts in onions in the United States. The restriction was unusually specific: onions became an exception to the broader system for trading commodity futures. It did not make onion trading illegal; buyers and sellers could still trade the crop itself. The law drew a line between selling onions and betting on their future price—a line that remains unusual in American commodity markets.
