The Learn About Futures Insider: Pork Bellies

[johntrade]

Pork bellies - the streaky meat from the underside of a pig - are the source of "American style" bacon. Since the ancient Chinese started preserving and salting pork nearly 1500 BC, it is likely pork is one of the oldest preserved meats. Nowadays, the belly may be flash frozen and stored. These contract specifications refer to the CME contract.

 

Contract Size: 40,000 lbs

 

Price Quote & Tick Size: cents per pound; minimum fluctuation is $.00025 per pound ($10 per contract)

 

Contract Months: February, March, May, July, August

 

Trading Specs: Floor trading is conducted MON-FRI 9:05 am to 1:00 pm CT; Globex trading MON 9:05 a.m. - FRI 1:55 p.m. Central Time. Daily trading halts 4:00 p.m. - 5:00 p.m. Central Time

 

Daily Price Limit: $.03 per pound above or below previous day's settlement price; expandable to $.045 per pound

 

Trading Symbols: PB; GPB on Globex

Past performance is not indicative of future results.

***chart courtesy of Gecko Software

 

Pork Bellies Facts

A larger percentage of hog production occurs in the Midwestern United States and the largest individual state production falls to Iowa, North Carolina, Minnesota, and Illinois. Early access to the eastern coastal cities of the United States via the Erie Canal may have helped create this farming trend. Although pigs are often said to have large appetites and consume everything in sight, today's farming practices tend towards careful diets which result in leaner meat. Most of the feed for hogs will contain corn or soybean meal, likely linking this market closely to grain markets. A large percentage of the thiamin in the average person's diet comes from pork.

 

Globally, exports, production, and consumption are distributed as follows:

 

** Data courtesy of USDA

 

** Data courtesy of USDA

 

** Data courtesy of USDA

 

In the US, the per capita consumption of pork compares to beef and chicken as illustrated in the following graph:

Key terms for this market include:

 

Farrow - a word to describe a litter of pigs or the action of producing a litter of pigs.

Bellies - the boneless cut of meat from the belly of swine

 

Key Uses

 

Pork bellies are a food product for bacon or other dishes. Pig fat may even be used for various household items such as weed killers, crayons, antifreeze or chalk.

Key Concerns

 

In addition to the following variables, if you are trading any pork product, you will also want to be aware that the USDA issues a Quarterly Hogs and Pigs report that details domestic hog inventories, as well as the birth rate (a farrow is a litter of pigs or, as a verb, means to produce a little of pigs) and litter sizes for breeding sows. Cold storage reports will also detail monthly supplies of pork bellies.

 

Feed Costs: Higher feed costs - particularly corn - can typically affect the weight and rate at which a farmer will take hogs to market. If farmers were to bring more hogs to market at lower weights to save on overall feed costs, this may increase supply and possibly depress prices.

 

Domestic and International Demand: Like other meats, there are regional and religious preferences which can impact the demands for pork. Certain advertising campaigns can work to increase consumption and any health concerns associated with one type of livestock can possibly result in a substitutive demand for another. Trade agreements and available markets for US exports are also of fundamental interest as well as the recent suggestion that increasing wealth in developing nations also increases the regular consumption of meat. Adverse reactions may exist when topics such as Swine Flu (H1N1) make headlines.

 

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