It wasn’t long before Kosuga began using deceitful strategies to boost his success as a futures trader. His actions led him to become a wealthy and famous man, but they also directly resulted in the United States Congress passing the “Onion Futures Act” in 1958, which banned the trading of futures contracts on onions.
It is not surprising that the U.S. government eventually took notice of Kosuga and Seigel’s activities: by the end of 1955, the pair had bought millions upon millions of pounds of onions and were so involved in futures trading that they allegedly controlled over 95% of all available onions in Chicago. The reported windfall for Kosuga and Siegel was huge: over 8 million dollars, which today would amount to over 80 million dollars.
Kosuga Started Out as a Farmer
Kosuga came from a Russian-Polish Jewish family before converting to Catholicism. His devoutness and generosity made him important in his church and community. In his early years, Kosuga labored only as a farmer, growing onions, celery, and other crops. Kosuga’s customers included small-time businesses and big companies like Campbell’s Soup, but his involvement in trading wheat futures in the 1930s nearly bankrupted him.
Commodities trading is when investors buy and sell different commodities like oil, gold, and vegetables and speculate on their prices. This kind of trading may be done to create liquidity, secure raw materials, and as a way to invest by speculating on the future prices of such commodities.
Kosuga Began Trading Onion Futures in Chicago
Even though Kosuga’s first experiences in trading futures turned out badly and forced him to focus solely on his farming, by the time he was in his forties, his venture into that area of investment resulted in much larger success. In the mid-1950s, he became involved in the Chicago Mercantile Exchange, where onion futures were hotly traded products.
It was in Chicago that Kosuga began working with Sam Seigel. Seigel owned a facility that worked well as an onion storage, so both partners began buying onions not just locally but from all over the country and soon after began buying onion futures. It was a strategy that eventually led them to corner and manipulate the onion market.
Using Bribery and Deceit to Succeed
Kosuga’s strategies to manipulate the onion market and increase profits came in different shapes and sizes. He once convinced a local weather service, most likely through bribery, to issue a frost warning on the region when there was no indication a cold front was coming. This warning, if real, would pose a great risk to onion crops, which inflated the price of onion futures contracts, thus making the owners of such contracts, like Kosuga, a pretty penny.
Clearly, thinking outside the box wasn’t the only way Kosuga rose to success: creating and maintaining relationships with the right people was also essential. He was known to shower associates with gifts and bonuses, even gifting his brokers expensive cars during a particularly successful business year.
Hoarding Large Amounts of Onions
Though Kosuga and Siegel’s business practices were sometimes quite creative, their main strategy was relatively straightforward: come to own a huge share of the onion market and then store the product in order to create a shortage in the market. Once this was done, they would begin selling their stock at a higher price, profiting from the shortage they had a central role in creating.
Helping their strategy was the fact that back then, just as today, onions were an essential food product all throughout the United States. Whether they were used raw in salads or cooked along with meats or to make sauces or condiments, these versatile vegetables were used constantly and in a variety of ways by citizens of all classes.