~Lauren M. Ruhland
As the previous post points out, airline companies and others are calling for an end to oil speculation. Commodities trading is a pretty common phenomenon, and the last post explains why limiting speculation is a misguided policy. However, there is a growing movement toward speculation in the only agricultural product “protected” by a federal prohibition of futures trading– onions:
[E]ven 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.
Michigan is actually partly to blame for the problem. Back in 1958, the state’s onion growers lobbied a young representative from to propose an end to onion speculation. They believed that speculators were responsible for a rapid drop in onion prices, though much of it was due to increased supply after the onion industry expanded in other states. Regardless of the cause of the price drop, the onion lobby was successful in getting the bill passed, and that congressman went on to do pretty well for himself.