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"In the 2000s (decade), onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for
by Matticus_Rex 8y ago
"In the 2000s (decade), onion prices were significantly more volatile than corn or oil prices. This volatility led the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading."
This is the important part -- ag futures are insurance for farmers. You don't have to get it, but it limits your downside when you do, which is extremely important in low-margin, capital-intensive industries like agriculture. Banning the insurance may prevent one-off manipulations and limit the upside captured by speculators, but it also makes the industry much more dangerous, particularly for smaller players.
- protomyth 8y agoYep, for a decent explanation of hedging ISU has a page https://www.extension.iastate.edu/agdm/crops/html/a2-60.html https://www.extension.iastate.edu/agdm/crops/html/a2-60.html Note the futures market requirement for hedging.
- S_A_P 8y agoWork in energy and commodity trading. This is probably one of the best explanations to what is at best a very confusing concept. Thanks for posting
- gammateam 8y agoYou can squeeze repeals like these into Budget Appropriation Acts to avoid government shutdowns If you want. Better and faster than the popular vote for different representatives, you dont even have to be registered anywhere. The US Federal Government doesnt have single item veto, and Congress wont care to revisit this even if they noticed later.
- Aloha 8y agoWhat on earth does this have to do with the OP's comment?
- nine_k 8y agoThe comment suggests futures-based hedging of governmental (over)spending.
- gammateam 8y agoreally? no. It was about how to repeal the Onion Futures Act
- gammateam 8y ago> What on earth does this have to do with the OP's comment? the onion futures act prevents farmers from having agricultural insurance on onion the same way they do on their other crops the onion futures act can be repealed with very low effort by inserting it into a bill that congress has to pass, such as budget appropriation bills didn't realize nobody caught that
- deleted 8y ago[deleted]
- rue 8y agoIsn’t there then just the option of traditional split-risk insurance?
- fujimotos 8y ago> ag futures are insurance for farmers I know nothing about futures, but how does it work? Insurance works because a loss happens to some individual, not to all members of the class of people at all once. So insurers can cover the specific loss with pooled money. But if ag price falls, every farmer (that is, all members of the insurance buyers) suffers loss, right? Won't it just bankrupt the insurance providers?