What I mean is that the merchant buys grain and/or futures at agreed prices simply to corner the market - no fraud or coercion. The merchant then has a monopoly on a staple food and can milk the inhabitants of the region for whatever they own.
I think this is not a good situation, and the fact it is allowed (maybe even implicitly encouraged) in objectivism suggests to me that it is another pretty severe flaw in such a system.
Nothing is explicitly put in place to prevent that (if there was something in place to prevent it then it would no longer be within the rules). As far as what could keep it from happening, two possibilities are the merchant simply being unable to buy up all the grain/futures (perhaps because other people are trying to do the same thing and so none of them end up with a monopoly) and the inhabitants of the region switching to a different, cheaper staple food. Or he may somehow monopolize all of the staple foods in an area, so people figure out a way of buying from farther away, or they move to a different region (assuming that every single food market has not somehow managed to have a monopoly on every staple crop). Or some farmers (either existing ones, or new farmers) could decide to sell their crop for less than the merchant is charging. People might decide to run some kind of communal farm and just grow the stuff themselves (depending on the size of the region). They may convince the merchant that he'll gain more if he lowers his prices and collects money over many years (not guaranteed to work by any means, but the point is that there are a lot of options here that could be tried).
The biggest limit on potential ways to deal with this kind of problem is imagination.