So I was talking to someone about livestock futures yesterday and I was like “I know you can get cattle futures and pork...
So I was talking to someone about livestock futures yesterday and I was like “I know you can get cattle futures and pork futures, but what about chicken? why shouldn’t I be able to buy some chicken futures if I want to invest in chicken?”
And I looked it up and it turns out people have tried to start a chicken futures market three different times! This was in the 60s, 80s, and 90s, and every time it failed.
Apparently this is largely because in the cattle industry beef processors buy cattle from farmers, so there’s demand for futures from people who want to hedge against price volatility. But the chicken industry is more vertically integrated, so no one actually needs to hedge with futures.
Also I learned that in 1958 Congress passed a bill banning the sale of onion futures? It is still a misdemeanor that carries a fine of up to $5000, so be careful about that I guess.
(Of course there’s also the question of whether a vegetarian can even buy chicken futures. But my vegan friend bought cattle futures the other day so I think it’s generally considered acceptable.)
(Though now I am imagining animal rights groups campaigning for universities to be short livestock futures and it feels totally plausible. If you personally would like to be short livestock, there is a short livestock ETF that trades on the London Stock Exchange, but it does not seem very liquid and it might be hard to trade it if you are not British, idk. If you would like to be short chickens specifically, I recommend shorting the stock of poultry producers.)
oh man do you not know the onion futures story
okay, so, it’s the 1950s. there’s an onion farmer named Vincent Kosuga. he’s a pretty successful onion farmer, so he starts speculating in the commodities markets. after an initial disastrous flirtation with wheat futures, he finds a niche betting on onion prices – he is, after all, an onion farmer – and does pretty well for himself.
in 1955, Kosuga gets an idea. an awful idea. Kosuga gets a wonderful, awful idea. he starts building warehouses around the country, and places orders for all the onions he can get his hands on. in addition, he starts buying onion futures, guaranteeing him delivery of the onions that are still in the ground.
by that fall, he’s done what he’s set out to do. he owns 98% of the onions in the united states. he’s cornered the market, and he gets to control onion prices. of course, since he has all the onions, he jacks prices up really high and makes a ton of money.
but Kosuga isn’t done yet. he’s quietly been establishing a big short position in onion futures. then, all of a sudden, Kosuga starts flooding the market with all the onions he owns. onion prices go through the floor – literally selling for less than the cost of the bag they’re delivered in. since Kosuga is short onions, he makes another ton of money.
but everyone is super pissed at him. especially other onion farmers – when the price of onions got driven down to almost nothing, their crops, their hard work, became worthless. some of them went bankrupt, or even committed suicide. so of course they lobby congress. and congress, as always, legislates to prevent the previous crisis rather than the next one – and bans trading in onion futures.
of course, this is probably unnecessary and in fact harmful. it’s really rare for anyone to come close to cornering the market in a commodity, and it’s even harder today (you can’t really buy up all the onions in secret, without other traders noticing) than it was 60 years ago. nevertheless, trading in onion futures remains illegal in the US today.