Vincent Kosuga
Encyclopedia
Vincent Kosuga was an American
onion farmer and commodity
trader best known for manipulating the onion futures market
. Though he made millions of dollars on commodity trading, his actions were highly controversial and attracted government scrutiny. This scrutiny led to the passing of the Onion Futures Act
, which banned the trading of futures contract
s on onions.
, Kosuga was a devout Catholic. He donated a significant amount of his fortune to the church, and was rewarded with private audiences with three pope
s.
Kosuga carried a .38 caliber gun and a billy club
with him at all times. He drove stock cars
in his spare time and was a licensed pilot. He once survived a plane crash near Oswego, New York
when the plane he was flying ran out of fuel mid-flight. He was left in a body cast after the crash, but made a quick recovery.
, Kosuga owned a 5000 acres (2,023.4 ha) black dirt farm
where he grew onions, celery, and lettuce. His customers included the U.S. Army
and Campbell's soup
. He also began trading wheat futures. After an unsuccessful stint trading in which he was brought to the brink of bankruptcy
, Kosuga withdrew from commodity trading and at his wife's insistence focused on farming full-time.
, accounting for 20% of its trades in 1955.
He soon began splitting his time between New York and Chicago, where he traded on the Chicago Mercantile Exchange several days a week. In Chicago, he was a very successful trader. He lavished expensive gifts upon his brokers, buying them each a new Buick
one year. One of his brokers eventually rose to the position of Chairman of the Mercantile Exchange.
Kosuga sometimes used deceptive practices to manipulate the futures market. He once bribed a weather bureau to issue a frost warning in order to inflate the price of futures contracts that he owned. The weather bureau did issue the warning, though the temperature never fell below 50 °F (10 °C).
. In the fall of 1955, Seigel and Kosuga bought enough onions and onion futures so that they controlled 98 percent of the available onions in Chicago. Millions of pounds
of onions were shipped to Chicago to cover their purchases. By late 1955, they had stored 30000000 pounds (13,607,771.1 kg) of onions in Chicago. They soon changed course and convinced onion growers to begin purchasing their inventory by threatening to flood the market with onions if they did not. Seigel and Kosuga told the growers that they would hold the rest of their inventory in order to support the price of onions.
As the growers began buying onions, Seigel and Kosuga purchased short positions on a large amount of onion contracts. They also arranged to have their stores of onions reconditioned because they had began to spoil. They shipped them outside of Chicago to have them cleaned and then repackaged and re-shipped back to Chicago. The new shipments of onions caused many futures traders to think that there was an excess of onions and further drove down onion prices in Chicago. By the end of the onion season in March 1956, Seigel and Kosuga had flooded the markets with their onions and driven the price of 50 pounds (22.7 kg) of onions down to 10 cents a bag. In August 1955, the same quantity of onions had been priced at $2.75 a bag. So many onions were shipped to Chicago in order to depress prices that there were onion shortages in other parts of the United States.
Seigel and Kosuga made millions of dollars on the transaction due to their short position on onion futures. At one point, however, 50 pounds (22.7 kg) of onions were selling in Chicago for less the bags that held them. This drove many onion farmers into bankruptcy. A public outcry ensued among onion farmers who were left with large amounts of worthless inventory. Many of the farmers had to pay to dispose of the large amounts of onions that they had purchased and grown.
. Kosuga was defiant, replying to his critics: "If it's against the law to make money... then I'm guilty". The abrupt change in prices gained the attention of the Commodity Exchange Authority
. Soon they launched an investigation and the U.S. Senate Committee on Agriculture
and House Committee on Agriculture
held hearings on the matter.
Kosuga testified before congress, and defended his practices under questioning from members of the committee. During the hearings, the Commodity Exchange Authority stated that it was the perishable nature of onion which made them vulnerable to price swings. Then-congressman Gerald Ford
of Michigan sponsored a bill, known as the Onion Futures Act, which banned futures trading on onions. The bill was unpopular among traders, some of whom argued that onion shortages were not a crucial issue since they were used as a condiment rather than a staple food. The president of the Chicago Mercantile Exchange, E.B. Harris
, lobbied hard against the bill. Harris described it as "Burning down the barn to find a suspected rat". The measure was passed, however, and President Dwight D. Eisenhower
signed the bill in August 1958.
After the ban was passed, the Chicago Mercantile Exchange filed a lawsuit in federal court alleging that the ban unfairly restricted trade. After a federal judge ruled against them, they declined to appeal to the Supreme Court
and the ban stood.
.
He became well respected for his philanthropy, and 1987 was named Pine Island
Citizen of the Year by the Pine Island Chamber of Commerce. After Kosuga died, his widow, Polly Kosuga, continued his philanthropy.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
onion farmer and commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
trader best known for manipulating the onion futures market
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
. Though he made millions of dollars on commodity trading, his actions were highly controversial and attracted government scrutiny. This scrutiny led to the passing of the Onion Futures Act
Onion Futures Act
The Onion Futures Act is a United States law banning the trading of futures contracts on onions. In 1955 two onion traders, Sam Seigel and Vincent Kosuga, cornered the onion futures market on the Chicago Mercantile Exchange. The resulting regulatory actions led to the passing of the act on August...
, which banned the trading of futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s on onions.
Personal life
The son of a Russian Jew who converted to CatholicismCatholicism
Catholicism is a broad term for the body of the Catholic faith, its theologies and doctrines, its liturgical, ethical, spiritual, and behavioral characteristics, as well as a religious people as a whole....
, Kosuga was a devout Catholic. He donated a significant amount of his fortune to the church, and was rewarded with private audiences with three pope
Pope
The Pope is the Bishop of Rome, a position that makes him the leader of the worldwide Catholic Church . In the Catholic Church, the Pope is regarded as the successor of Saint Peter, the Apostle...
s.
Kosuga carried a .38 caliber gun and a billy club
Baton (law enforcement)
A truncheon or baton is essentially a club of less than arm's length made of wood, plastic, or metal...
with him at all times. He drove stock cars
Stock car racing
Stock car racing is a form of automobile racing found mainly in the United States, Canada, New Zealand, Great Britain, Brazil and Argentina. Traditionally, races are run on oval tracks measuring approximately in length...
in his spare time and was a licensed pilot. He once survived a plane crash near Oswego, New York
Oswego, New York
Oswego is a city in Oswego County, New York, United States. The population was 18,142 at the 2010 census. Oswego is located on Lake Ontario in north-central New York and promotes itself as "The Port City of Central New York"...
when the plane he was flying ran out of fuel mid-flight. He was left in a body cast after the crash, but made a quick recovery.
Farming
Born and raised in Pine Island, New YorkPine Island, New York
Pine Island is a hamlet in the town of Warwick in Orange County, New York, United States. It is the largest community in the Black Dirt Region, which is famous for the "black dirt onions." Pine Island is also home to the annual Onion Festival, celebrating the fact that nearly 30% of all the onions...
, Kosuga owned a 5000 acres (2,023.4 ha) black dirt farm
Black Dirt Region
The Black Dirt Region is located in southern Orange County, New York, USA and northern Sussex County, New Jersey. It is mostly located in the western section of the Town of Warwick, centered around the hamlet of Pine Island...
where he grew onions, celery, and lettuce. His customers included the U.S. Army
United States Army
The United States Army is the main branch of the United States Armed Forces responsible for land-based military operations. It is the largest and oldest established branch of the U.S. military, and is one of seven U.S. uniformed services...
and Campbell's soup
Campbell Soup Company
Campbell Soup Company , also known as Campbell's, is an American producer of canned soups and related products. Campbell's products are sold in 120 countries around the world. It is headquartered in Camden, New Jersey...
. He also began trading wheat futures. After an unsuccessful stint trading in which he was brought to the brink of bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, Kosuga withdrew from commodity trading and at his wife's insistence focused on farming full-time.
Commodity trading
Kosuga was unable to leaving trading behind permanently, however, and returned to the commodity market where he began trading onion futures. At the time, onions futures contracts were the most traded product on the Chicago Mercantile ExchangeChicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
, accounting for 20% of its trades in 1955.
He soon began splitting his time between New York and Chicago, where he traded on the Chicago Mercantile Exchange several days a week. In Chicago, he was a very successful trader. He lavished expensive gifts upon his brokers, buying them each a new Buick
Buick
Buick is a premium brand of General Motors . Buick models are sold in the United States, Canada, Mexico, China, Taiwan, and Israel, with China being its largest market. Buick holds the distinction as the oldest active American make...
one year. One of his brokers eventually rose to the position of Chairman of the Mercantile Exchange.
Kosuga sometimes used deceptive practices to manipulate the futures market. He once bribed a weather bureau to issue a frost warning in order to inflate the price of futures contracts that he owned. The weather bureau did issue the warning, though the temperature never fell below 50 °F (10 °C).
Cornering the market
With his partner Sam Seigel, a fellow onion trader and owner of a local produce company, Kosuga embarked upon a scheme to corner the onion futures marketCornering the market
In finance, to corner the market is to get sufficient control of a particular stock, commodity, or other asset to allow the price to be manipulated. Another definition: "To have the greatest market share in a particular industry without having a monopoly...
. In the fall of 1955, Seigel and Kosuga bought enough onions and onion futures so that they controlled 98 percent of the available onions in Chicago. Millions of pounds
Pound (mass)
The pound or pound-mass is a unit of mass used in the Imperial, United States customary and other systems of measurement...
of onions were shipped to Chicago to cover their purchases. By late 1955, they had stored 30000000 pounds (13,607,771.1 kg) of onions in Chicago. They soon changed course and convinced onion growers to begin purchasing their inventory by threatening to flood the market with onions if they did not. Seigel and Kosuga told the growers that they would hold the rest of their inventory in order to support the price of onions.
As the growers began buying onions, Seigel and Kosuga purchased short positions on a large amount of onion contracts. They also arranged to have their stores of onions reconditioned because they had began to spoil. They shipped them outside of Chicago to have them cleaned and then repackaged and re-shipped back to Chicago. The new shipments of onions caused many futures traders to think that there was an excess of onions and further drove down onion prices in Chicago. By the end of the onion season in March 1956, Seigel and Kosuga had flooded the markets with their onions and driven the price of 50 pounds (22.7 kg) of onions down to 10 cents a bag. In August 1955, the same quantity of onions had been priced at $2.75 a bag. So many onions were shipped to Chicago in order to depress prices that there were onion shortages in other parts of the United States.
Seigel and Kosuga made millions of dollars on the transaction due to their short position on onion futures. At one point, however, 50 pounds (22.7 kg) of onions were selling in Chicago for less the bags that held them. This drove many onion farmers into bankruptcy. A public outcry ensued among onion farmers who were left with large amounts of worthless inventory. Many of the farmers had to pay to dispose of the large amounts of onions that they had purchased and grown.
Regulatory action
In the aftermath of the crash, many commentators characterized Kosuga's actions as unprincipled gamblingSpeculative attack
A speculative attack is a term used by economists to denote a precipitous acquisition of something by previously inactive speculators. The first model of a speculative attack was contained in a 1975 discussion paper on the gold market by Stephen Salant and Dale Henderson at the Federal Reserve Board...
. Kosuga was defiant, replying to his critics: "If it's against the law to make money... then I'm guilty". The abrupt change in prices gained the attention of the Commodity Exchange Authority
Commodity Exchange Authority
The Commodity Exchange Authority was a former regulatory agency of USDA. It was established toadminister the Commodity Exchange Act of 1936; it was the predecessor to the Commodity Futures Trading Commission ....
. Soon they launched an investigation and the U.S. Senate Committee on Agriculture
United States Senate Committee on Agriculture, Nutrition and Forestry
The Committee of Agriculture, Nutrition and Forestry is a committee of the United States Senate empowered with legislative oversight of all matters relating to the nation's agriculture industry, farming programs, forestry and logging, and legislation relating to nutrition and...
and House Committee on Agriculture
United States House Committee on Agriculture
The U.S. House Committee on Agriculture, or Agriculture Committee is a standing committee of the United States House of Representatives. The House Committee on Agriculture has general jurisdiction over federal agriculture policy and oversight of some federal agencies, and it can recommend funding...
held hearings on the matter.
Kosuga testified before congress, and defended his practices under questioning from members of the committee. During the hearings, the Commodity Exchange Authority stated that it was the perishable nature of onion which made them vulnerable to price swings. Then-congressman Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
of Michigan sponsored a bill, known as the Onion Futures Act, which banned futures trading on onions. The bill was unpopular among traders, some of whom argued that onion shortages were not a crucial issue since they were used as a condiment rather than a staple food. The president of the Chicago Mercantile Exchange, E.B. Harris
E.B. Harris
Everette B. Harris, better known as E.B. Harris, was an American businessman. Harris served as President of the Chicago Mercantile Exchange from 1953 to 1978. During this time, he oversaw the diversification of the products traded on the exchange...
, lobbied hard against the bill. Harris described it as "Burning down the barn to find a suspected rat". The measure was passed, however, and President Dwight D. Eisenhower
Dwight D. Eisenhower
Dwight David "Ike" Eisenhower was the 34th President of the United States, from 1953 until 1961. He was a five-star general in the United States Army...
signed the bill in August 1958.
After the ban was passed, the Chicago Mercantile Exchange filed a lawsuit in federal court alleging that the ban unfairly restricted trade. After a federal judge ruled against them, they declined to appeal to the Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
and the ban stood.
Later life
After the futures market was reformed, Kosuga returned to New York full time and focused on his local business interests and philanthropy. Kosuga opened a restaurant next to his farm called The Jolly Onion Inn, where he served as a chef. The Jolly Onion Inn (now known as Ye Jolly Onion Inn) became one of the most popular restaurants in Orange CountyOrange County, New York
Orange County is a county located in the U.S. state of New York. It is part of the Poughkeepsie–Newburgh–Middletown, NY Metropolitan Statistical Area and is located at the northern reaches of the New York metropolitan area. The county sits in the state's scenic Mid-Hudson Region of the Hudson Valley...
.
He became well respected for his philanthropy, and 1987 was named Pine Island
Pine Island, New York
Pine Island is a hamlet in the town of Warwick in Orange County, New York, United States. It is the largest community in the Black Dirt Region, which is famous for the "black dirt onions." Pine Island is also home to the annual Onion Festival, celebrating the fact that nearly 30% of all the onions...
Citizen of the Year by the Pine Island Chamber of Commerce. After Kosuga died, his widow, Polly Kosuga, continued his philanthropy.