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 2011.
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.