For those of us who actually have a little experience using data to make decisions, the chart on the left makes perfect sense. You can clearly see that onions are much more volatile than oil. However, no one is accusing some “onion” speculators in cornering the market to make lots of money from hapless consumers…
From Fortune magazine:
“Before the government 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 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, only to crash 96% by March 2008 on overproduction and then rebound 300% by this past April (see top chart above, click to enlarge).”
Now, the truth is that Fortune Magazine is making some flawed assumptions that the lack of an onion futures market is a primary reason for the volatility that allows a you direct comparison of onions to oil. Now it is accurate to say that futures markets are designed to lessen volatility by allowing those with an economic interest to hedge their economic exposures. Onions would be less volatile with a futures market, but that wouldn’t necessarily explain why one market is less or more volatile than a market for a different commodity.
All that being said, oil is a transparently traded commodity with millions of dollars changing hands in the spot and futures markets everyday. To make a buy, someone has to make a sell. The market is too active, too large, and too transparent to make “cornering” the market possible.
Are scurrilous “speculators” storming the market to screw consumers? Onions!