Pork Bellies

What Are Pork Bellies?

A pork belly is the cut of pork that comes from the belly of a pig. Pork bellies were recently traded in the futures market, as they are an important source of meat products, especially bacon. Trading in frozen pork belly futures started in 1961 on the Chicago Mercantile Exchange (CME) and permitted meatpackers to hedge the unstable pig market. Throughout the long term, pork bellies and pork belly trading acquired a certain persona in the American creative mind.

Pork Bellies Explained

Pork bellies turned into the iconic commodity for the futures market's representation in mainstream society and have been referenced in different movies connecting with investing and trading, maybe most broadly in the 1983 satire Trading Places, featuring Eddie Murphy. While they were a major futures contract for a really long time, the declining prominence of pork bellies on trading platforms and bacon's developing all year availability drove the CME to a stop in trading in 2011.

The futures contract in pork bellies pre-dates numerous financial futures contracts traded today. Pork belly futures arrived at the pinnacle of their prominence in the mid 1980s, when they were likewise used to hedge consumer food inflation all the more generally.

Since the 1980s, the bacon business has changed, with consumers eating more pork all year, requiring less requirement for cold storage and, thus, less need to hedge the frozen meat available to be purchased in the late spring. The decreased need to store frozen pork bellies straightforwardly contributed to the death of the futures contract. Today pork producers consumers actually hedge some pork costs with CME's lean pigs futures contract as opposed to pork bellies futures. Notwithstanding lean hoard futures, other domesticated animals futures traded on the CME incorporate live dairy cattle and feeder steers futures.

Pork Bellies Contracts

Right now, the CME records Lean Hog (HE) futures, which address the prices paid for live hoards, where each contract addresses 40,000 pounds of meat. The contracts are quoted in pennies per pound with a base tick size of $10.00. Lean Hog futures are cash-settled.

The CME additionally records Pork Cutout (PRK) futures, likewise addressing 40,000 pounds of meat, yet addressing the values paid lower down the meat supply chain, in view of the cuts of meat sold to wholesalers and butchers. These, too, are cash-settled.

CME Fresh Bacon Index

The significance of bacon as a food product drove the CME to present the CME Fresh Bacon Index in 2019. This index sets a week by week bacon price, for 20,000 pounds of new pork bellies, yet there are no futures contracts or other trading instruments.

Features

• Pork belly futures were a spearheading financial instrument when they were presented in 1961, yet they were phased out in 2011 due to declining market interest and changes in the bacon market.
• Pork bellies are in a real sense the cut of pork from the belly of a pig. For some Americans, they turned into an icon of futures trading.