The bill titled “The Onion Futures Act,” as put forward by Gerald Ford, dictated that all onion futures traded in the future would have to be sorted out in cash as opposed to actual physical onions. It also proposed that the government should have the right to set limits on the quantity of onion futures that could be traded.
Unsurprisingly, the Chicago Mercantile Exchange opposed both measures and opposed the bill in general. In the end, trading onions as a commodity was banned. For Kosuga and Siegel, the consequences they faced seem, in retrospect, to have been minor: their registrations as brokers were revoked, and they were banned from trading for ten months.
President Eisenhower Turned the Onion Act Into a Law
On August 28th, 1958, President Dwight D. Eisenhower signed the Onions Futures Act, and it officially became law. What had begun as an idea to play the commodities market in Chicago by Vincent Kosuga had spiraled in such a way that it prompted Congress to officially make a law to prevent what he and Sam Siegel had done and gotten away with. After all, their market manipulations were not illegal when they committed them.
In 1961, after the Chicago Mercantile Exchange failed to successfully challenge the law in federal court, it drew its attention to coming up with a new commodity to trade in the futures market: pork-belly futures. That’s right — Vincent Kosuga inadvertently set the course for the trading of frozen pork bellies.
Eisenhower Made Several Other Laws
Dwight D. Eisenhower, president of the United States from 1953 to 1961, had a busy presidency, and the Onion Futures Act was one of several key bills he signed into law that were part of his agenda. Two years prior to that bill, he promoted and signed a bill to create the Interstate Highway System, which laid the foundation for the most important highways and roads in the United States.
He also signed the National Defense Education Act in 1958, which infused large amounts of funding into the educational system with a focus on strengthening national defense. A year earlier, Eisenhower also signed the Civil Rights Act of 1957, which intended to support and enforce the 1954 Supreme Court ruling that officially banned segregation in schools.
Most Traders Didn’t Like the New Law
Despite the damage that Kosuga and Siegel’s actions caused, the Onions Futures Act was not generally popular among traders. E.B. Harris, a prominent voice because of his position as president of the Chicago Mercantile Exchange, went hard against the bill and was quoted as saying “We submit that burning down the barn to find a suspected rat is a pretty drastic remedy.”
The fight against the bill continued after its passing in 1958, as the Chicago Mercantile Exchange filed a lawsuit in federal court to have it struck down on the basis that it restricted trade in an unfair and unnecessary manner. That lawsuit proved to be unsuccessful, at which point the CME decided to drop the fight instead of taking it to the Supreme Court.
Chicago’s Pork Belly Market Closed Down
After Kosuga and Siegel’s onion scheme caused onions to be banned from being traded at the Chicago Mercantile Exchange, one of the commodities that took their place was pork bellies. They came onto the scene in 1961 and enjoyed a lot of success through that decade and the 1970s.
By the time pork bellies futures trading was shut down in 2011 due to a lack of demand and activity, they had been the oldest livestock futures to trade in the country. Harvey Paffenroth, who happened to be none other than Kosuga’s nephew and was a member of the Chicago Mercantile Exchange, said that pork bellies were the glamour market.