What Are Pork Bellies?
A pork belly is the cut of pork that comes from the belly of a pig. Pork bellies were previously traded in the futures market, as they are an important source of meat products, particularly bacon. Trading in frozen pork belly futures began in 1961 on the Chicago Mercantile Exchange (CME) and allowed meat packers to hedge the volatile pig market. Over the decades, pork bellies and pork belly trading gained a certain mystique in the American imagination.
- Pork bellies are literally the cut of pork from the belly of a pig. To many Americans, they became an icon of futures trading.
- Pork belly futures were a pioneering financial instrument when they were introduced in 1961, but they were phased out in 2011 due to declining market interest and changes in the bacon 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 and trading, perhaps most famously in the 1983 comedy "Trading Places," starring Eddie Murphy. While they were a major futures contract for decades, the declining popularity of pork bellies on trading platforms and bacon's growing year-round availability led the CME to halting trading in 2011.
The futures contract in pork bellies pre-dates many 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 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.
New Fresh Bacon Index
Still, the importance of bacon as a food product led the CME to introduce the CME Fresh Bacon Index in 2019. This index sets a weekly bacon price, for 20,000 pounds of fresh pork bellies, but there are no futures contracts or other trading instruments.