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Thread: India (and the US) Should Have An Onion Futures Market

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    India (and the US) Should Have An Onion Futures Market

    The history of onion trading is actually very interesting.

    Know Your Onions
    Indian onion prices frequently spike during monsoon season as crops fail and stockpiles rot

    Blame quickly shifted to speculators, with the income tax department raiding the offices and premises of seven traders accused of hoarding product around Nashik, the hub of the country's onion trade northeast of Mumbai in Maharashtra state. India's agriculture ministry has since demanded that Maharashtra investigate whether a cartel was operating in the onion market, the Indian Express reported last month.

    The situation echoes the sequence of events that led to the U.S. Congress outlawing onion futures in 1955, but India should learn from the history of that legislation (which failed to quell volatility in allium prices) and do the opposite. Onion derivatives are an idea whose time has finally come.

    The lessons of economics are universal: once we manage to work out what those lessons are of course. And one of the things we think we know is that the presence of a futures market lessens price volatility. This is because a futures market moves prices through time: and it's that aspect of such markets working as a time machine which lowers the price volatility across that time.
    In 1958 they banned those futures contracts and price volatility of onions increased. In the 2000s, onions had the greatest price volatility of any agricultural commodities in the US: and there's futures markets in virtually all of the others but not in onions.
    So, the identified problem is the excessive price volatility of onions in India. We know that a futures market in onions will reduce price volatility. Therefore India should have a futures market in onions.

    In response to complaints from the powerful lobby, Republican Congressman Gerald Ford, who would go on to be our 38th President, pushed through the Onion Futures Act.

    So in 1958, the futures trading in onions was banned, because, “speculative activity in the futures market causes such severe and unwarranted fluctuations in the price of cash onions” that “a complete prohibition of union futures trading” was needed “in order to assure the orderly flow of onions in interstate commerce.”

    Still on the books to this day, it remains the only ban on trading of a specific commodity in United States history.

    To this day, onion prices are significantly more volatile than oil prices, yet oil is the most heavily speculated on commodity in the world.
    Last edited by Krugminator2; 01-02-2018 at 09:32 PM.

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