Pork Bellies Futures Trading Basics

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Pork Bellies Futures Trading Basics

Pork Bellies futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of pork bellies (eg. 40000 pounds) at a predetermined price on a future delivery date.

Pork Bellies Futures Exchanges

You can trade Pork Bellies futures at Chicago Mercantile Exchange (CME).

CME Frozen Pork Bellies futures prices are quoted in dollars and cents per pound and are traded in lot sizes of 40000 pounds (18 metric tons).

Exchange & Product Name Symbol Contract Size Initial Margin
CME Frozen Pork Bellies Futures
(Price Quotes)
PB 40000 pounds
(Full Contract Spec)
USD 1,890 (approx. 6%)
(Latest Margin Info)

Pork Bellies Futures Trading Basics

Consumers and producers of pork bellies can manage pork bellies price risk by purchasing and selling pork bellies futures. Pork Bellies producers can employ a short hedge to lock in a selling price for the pork bellies they produce while businesses that require pork bellies can utilize a long hedge to secure a purchase price for the commodity they need.

Pork Bellies futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable pork bellies price movement. Speculators buy pork bellies futures when they believe that pork bellies prices will go up. Conversely, they will sell pork bellies futures when they think that pork bellies prices will fall.

Learn More About Pork Bellies Futures & Options Trading

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What Are Pork Bellies in the Stock Market?

Pork bellies are used to make bacon.

Hemera Technologies/PhotoObjects.net/Getty Images

For most people, the market for pork bellies was little more than a punch line to a joke about the absurdities of the financial industry. As bizarre as it sounded, these cuts of pork were traded as commodities on the futures market, with a handful of traders buying and selling futures contracts based upon nothing more than slices of meat you could find at many butchers’ shops.

In the history of the U.S. stock market, pork bellies were cuts of meat that were traded as futures through 2020.

Pork Bellies 101

As a traded commodity, pork bellies were exactly what their name implied: cuts of meat taken from pigs’ stomachs. Because these fatty cuts could be used to make bacon and were being produced year-round, traders began purchasing, freezing and warehousing pork bellies during the winter, when demand for bacon was traditionally lower, and selling them in the summer when consumers had a taste for bacon and its price was higher. This commodity, sold on the futures market, was the basis for pork belly trading.

Pork Bellies Traded as Commodities

Because pork bellies were an unprocessed good that meatpacking plants were able to use to make bacon and other products, they began selling as commodities. As with all commodities, they were traded in standardized units: In this case, a unit consisted of 40,000-pound frozen slabs made up of eight- to 18-pound individual cuts of meat. This standardized contract allowed slaughterhouses, traders and food manufacturers an easy reference point to buy and sell mass quantities of pork bellies efficiently.

Use of Futures Contracts

Pork bellies could be frozen for up to a year, so meatpackers began turning to the commodity to help smooth out production costs, which could fluctuate wildly with agricultural production. Traders began purchasing agreements to sell standardized lots of pork bellies in the future, attempting to maximize profits by purchasing pork bellies when costs were low due to decreased demand or increased production and selling them when prices rose again. Trading in pork belly futures began on the Chicago Mercantile Exchange in 1961.

The End of an Era

Consumers’ eating habits and taste for bacon didn’t remain constant, however. Where demand for pork bellies traditionally rose during the grilling season, bacon became a much more prevalent part of the American diet, appearing on hamburgers and in salads. Because of this, volatility – essentially an expression of how unpredictable prices were – made trading in pork belly futures too risky for most traders, and volume of the futures slowly declined. In 2020, the Chicago Mercantile Exchange de-listed pork belly futures due to low trading volumes.

Pork Bellies

What Are Pork Bellies?

Pork bellies are the cut of pork that comes from the belly of a pig. Pork bellies were previously traded in the futures market, as they are important components of meat products, such as bacon. Trading in pork bellies futures began in 1961 on the Chicago Mercantile Exchange (CME) and allowed meat packers to hedge the volatile pig market.

Pork Bellies Explained

Pork bellies became the iconic commodity for the futures market’s representation in popular culture, and has been mentioned in a variety of films relating to investing, such as “Trading Places”. While they were a major future contract traded for decades, their declining popularity in trading platforms led to the CME to halting trading in 2020.

The futures contract in pork bellies pre-dates some financial futures contracts traded today. Pork belly futures reached the peak of their popularity in the early 1980s, when they were also used to hedge consumer food inflation more generally. Since the 1980s, the bacon business has changed, with consumers eating more pork year-round, requiring less need for cold storage and, so, less need to hedge the frozen meat for sale in summertime. The reduced need to store frozen pork bellies directly contributed to the demise of the need for the futures contract.

Today pork producers and consumers still hedge some pork costs with CME’s lean hogs futures contract rather than pork bellies futures. In addition to lean hog futures, other livestock futures traded on the CME include live cattle and feeder cattle futures.

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