Most onion growers gave into the demands of Kosuga and his partner and began buying onions at the price they set to avoid the price decrease in the product that Kosuga had threatened. But as this was going on, the duo began to purchase short positions on a large amount of onion futures, which meant they were expecting the prices of that commodity to decrease.
Because many of their onions had begun to spoil — or perhaps because they intentionally wanted to create an image of onions flooding the market — Kosuga and Siegel began to ship their inventory out of Chicago so that the produce could be serviced and then reshipped back to the city.
They Stored More Than Thirty Million Pounds of Onions
Between being successful at buying low and selling high — the essential formula for merchants of any kind — and having the ability to corner the market by buying up a large amount of the area’s onion supply, Kosuga, and his partner made it big and became rich. Their unprecedented success made them stars in the commodities market and beyond.
The relatively small storage house that Siegel owned at the outset of his business venture with Kosuga eventually gave way to huge warehouses. At one point in 1955 and into 1956, the warehouses stored over thirty million pounds of onions, which would take almost one thousand carloads to transport.
They Forced Onion Growers to Buy Their Onions
By the second half of 1955, millions of pounds of onions had to be shipped into Chicago to cover the purchases, both in onion produce as well as futures, made by Kosuga and Siegel. Owning such an outsized portion of the area’s onion inventory allowed them to essentially blackmail growers into buying their onions.
Kosuga and Siegel told growers that if they wanted to, they would flood the market with the huge number of onions they already had stored, which would cause the prices of the vegetable to go down precipitously. At the time, a bag containing 50 pounds of onions cost an average of $2.75, and the antics of the two merchants and businessmen threatened to affect that price significantly.
The Onion King’s Manipulations Caused Prices to Fall
As the shipments of onions that had originated in Chicago began to be shipped back into that very same city, it created the sentiment that there was an excess of onions in the market. This effectively lowered the price of onions, which played right into the hands of Kosuga and Siegel, who had lavishly purchased positions in the futures market that predicted a fall in the price of onions.
This trend continued into 1956, by which point onion prices had dropped shockingly low: a 25-pound bag that used to cost around $1.37 a year prior was now priced at approximately 5 cents. So large was the amount of onions flooding the Chicago market that it caused onion shortages to plague other areas of the country.
Farmers and Growers Were Badly Affected
Kosuga and Siegel made millions from this scheme while leaving many farmers in a precarious position of financial loss: many were left with large amounts of high-priced onions that were impossible to sell, and in several cases, these growers had to pay out of pocket to get rid of all that inventory. Needless to say, this led a good number of farmers to be forced to declare bankruptcy.
What had begun as a deal between Kosuga and the growers would supposedly help everyone involved. The farmers would buy the inventory from the merchants, who would then hold on to the inventory until demand surged. This ended up negatively affecting the growers when the merchants decided to make their profits by lowering onion prices instead of increasing them.