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For those who don’t know: https://en.wikipedia.org/wiki/Onion_Futures_Act https://en.wikipedia.org/wiki/Onion_Futures_Act (which also banned box office receip
by cwal37 7d ago
For those who don’t know:
https://en.wikipedia.org/wiki/Onion_Futures_Act https://en.wikipedia.org/wiki/Onion_Futures_Act
(which also banned box office receipt futures)
A fun thing is to go on FRED and make a graph with prices from onions and, say, corn to see the differences in volatility.
- lukan 7d agoSo this is genuine free market activism?
- Avicebron 7d agoWhat will the kids think up next?
- chirau 7d agoI looked up onions, lettuce and tomatoes (because burgers), and the volatility actually looks very similar. Am I missing something or looking at the wrong things? Tomato: https://fred.stlouisfed.org/series/WPU01130217 https://fred.stlouisfed.org/series/WPU01130217 Onion: https://fred.stlouisfed.org/series/WPU01130216 https://fred.stlouisfed.org/series/WPU01130216 Lettuce: https://fred.stlouisfed.org/series/WPU01130215 https://fred.stlouisfed.org/series/WPU01130215
- gradus_ad 7d agoThe weather affects all crops
- vishalontheline 7d agoAnd the cost of transportation.
- brookst 7d agoBut isn’t the point that futures trading reduces volatility from things like weather?
- hyperhello 7d ago“Absorbs” volatility might be more accurate.
- brookst 7d agoI will resist the urge to inquire about the difference between reducing and absorbing.
- collingreen 7d agoI won't. What's the difference here between resisting and absorbing volatility?
- kennywinker 7d agoNot a financial expert, but i think reduce implies it goes away, and absorb implies it’s still there but someone is taking it up. Like reducing the amount of water on the floor would be turning off the tap. Absorbing the amount of water on the floor is when you mop it up.
- hyperhello 7d agoThat’s exactly what I meant. I was only replying to the question as posed.
- harpiaharpyja 7d agoOr to bring it back to the original context... Reducing volatility would be reducing the impact of bad weather on your harvest, absorbing volatility is finding someone to cover your losses. (presumably by giving up some profits on the good years. It's like a financial low pass filter)
- SR2Z 7d agoVolatility is a natural consequence of weather, blight, etc., etc. To reduce volatility you would need to actually stabilize the supply of onions. What futures do is allow traders to shift risk from the future to the present. By pricing that risk, it's possible for people who depend on onions to pay a little more now in exchange for a guarantee about the future. It's not magically going to make onions less volatile (although high risk prices can spur investment which might) but it can reduce disruptions caused by volatility. The classic example of this is futures on jet fuel which allow airlines to weather random wars in the middle east, OPEC shenanigans, etc. Ticket prices are higher this way, but the existential threat of being forced to cancel a bunch of flights is gone.
- bz_bz_bz 7d agoNone of the products you’ve chosen have a substantial futures market, which is why the person you responded to chose corn to make their point.
- repiret 7d agoLettuce and Tomatoes don't keep well, which adds more seasonal variability and reduces the ability of a futures market to smooth prices. Compare with potatoes, which keep about as well an onions, and are farmed in the same areas. Look at onions and potatoes over a 5-year time span (because the default all-data time span is silly for this). It doesn't give enough control of the Y axis to make the comparison easy - for potatoes it shows me Y=40-320, for a range of 280; for onions it shows me Y=120-440, for a range of 320. This means that potatoes are more "zoomed in" and it's graph will exaggerate volatility relative to onions, but qualitatively, I'd say the potato graph looks smother just the same. This is exactly what economic theory says a futures market should do to the price.
- stymaar 7d ago> Lettuce and Tomatoes don't keep well, which adds more seasonal variability The more durable a produce is, the easier it is to transport over a large area, which will always smoothen price fluctuations. This alone could explain why lettuce and tomatoes have higher volatility than onions, which have higher volatility than potatoes, which have higher volatility than corn and weat. At least that's the null hypothesis that the hypothetical effect of futures should be compared to.
- mauvehaus 7d agoThis has to have been the inspiration for Milo Minderbinder cornering the cotton market in Catch-22, right?
- samaltman2 7d agoInteresting. This would be more sensible if it was time-bound. Since the intention was clearly "stop a bad thing someone is doing right now" and not "make this field illegal forever"
- echelon 7d agoThe box office receipts ban is hilarious. I suppose that prevents Kalshi gambling on box office duds?