What Are Pork Bellies? Definition, Explanation, 7 Facts

The majority of individuals viewed the market for pork bellies as nothing more than a punchline to a joke about the absurdity of the financial world.

As odd like it may have seemed, these pig pieces were exchanged as commodities on the futures market, with a few of dealers buying and selling futures contracts based on nothing more than slices of flesh available at numerous butchers. =

Through 2011 pork bellies were traded as futures on the U.S. stock market.

What Are Pork Bellies?

The belly of a pig is the source of pork belly. As a significant supplier of meat products, especially bacon, pork bellies were once traded on the futures market.

What Are Pork Bellies?

In 1961, the Chicago Mercantile Exchange (CME) began trading frozen pork belly futures, enabling meatpackers to hedge against the fluctuating swine market. 1 Over the years, pork bellies and the trade of pork bellies have acquired a mystique in the American psyche.

Pork Bellies Explained

Pork bellies became the symbol of the futures market in popular culture and have appeared in a number of films about investment and trading, most notably the Eddie Murphy comedy Trading Places from 1983.

The CME ceased trading of pork bellies futures in 2011 due to their waning popularity on trading platforms and bacon’s increased year-round availability.

The futures contract for pork bellies predates many current financial futures contracts. In the early 1980s, pork belly futures were widely employed to hedge consumer food inflation.

What Are Pork Bellies?

Since the 1980s, the bacon industry has evolved as customers have become more accustomed to eating pig year-round, necessitating less cold storage and, thus, less need to hedge the frozen meat for summer sales.

The death of the futures contract was directly attributable to the decreased requirement to preserve frozen pork belly.

Today, pig producers and consumers continue to hedge a portion of pork prices via CME’s lean hogs futures contract as opposed to pork bellies futures. In addition to futures for lean hogs, the CME also trades futures for live cattle and feeder cattle.

Pork Bellies Contracts

Currently, the CME sells Lean Hog (HE) futures, which represent the prices paid for live pigs and represent 40,000 pounds of meat every contract. The minimum tick size for the contracts is $10.00. Futures on Lean Hog are paid in cash.

What Are Pork Bellies?

The CME also offers Pork Cutout (PRK) futures, which likewise represent 40,000 pounds of meat but reflect the prices paid for slices of pork supplied to wholesalers and butchers. 6 These are also resolved for cash.

CME Fresh Bacon Index

The CME introduced the CME Fresh Bacon Index in 2019 due to the significance of bacon as a food product. This index establishes the weekly price of bacon for 20,000 pounds of fresh pork bellies, but no futures contracts or other trading instruments are available.

Pork Bellies 101

As a commodity, hog bellies were precisely what their name implied: stomach flesh pieces.

Because these fatty cuts could be used to make bacon and were being produced year-round, traders began purchasing, freezing, and storing pork bellies during the winter, when demand for bacon was traditionally lower, and selling them in the summer, when consumers had a greater appetite for bacon and its price was higher.

This commodity, which was traded on the futures market, provided the basis for trading pork bellies.

Pork Bellies Traded as Commodities

Because pig bellies were an uncooked product that meatpacking facilities could utilize to produce bacon and other goods, they began to be sold as commodities.

As was the case with other commodities, they were exchanged in standard units: In this instance, a unit consisted of 40,000-pound frozen slabs of eight- to eighteen-pound individual beef chunks.

What Are Pork Bellies?

This standard contract made it simple for slaughterhouses, dealers, and food manufacturers to acquire and sell large amounts of pig bellies effectively.

Use of Futures Contracts

As pork bellies could be frozen for up to a year, meatpackers began using the commodity to stabilize manufacturing costs, which fluctuated widely with agricultural output.

Traders entered into purchase agreements to sell standardized amounts of pork bellies in the future in an effort to maximize profits by purchasing pork bellies while costs were low owing to lower demand or increased output and selling them when prices climbed again.

The Chicago Mercantile Exchange began trading pork belly futures in 1961.

The End of an Era

The eating habits and preferences of consumers for bacon changed over time. Bacon became a far more popular element of the American diet, appearing on hamburgers and salads.

Because of this, volatility — a measure of how unpredictable prices were – rendered trading in pork belly futures too hazardous for the majority of traders, and the volume of the futures steadily decreased.

What Are Pork Bellies?

Due to poor trading volumes, in 2011 the Chicago Mercantile Exchange delisted pork belly futures.

Conclusion

Although many people are acquainted with the term “pork bellies” being used in futures trading, not everyone is aware that the commodity is the pig’s belly. As the name suggests, it is a piece of pork or hog meat originating from the animal’s underbelly.

Pigs have two stomachs, each of which can weigh up to 18 pounds (10 kg). Typically, these bellies are chopped into long, thick slices before being flash-frozen.

Once frozen, they may be stored for a considerable amount of time and still be utilized as a food source. After being marinated or otherwise prepared, pig belly is used in American, Korean, and Chinese cuisines.

FAQ

Curing: The true difference between pork belly and bacon is the curing process—while pork belly is uncured meat, bacon is a cured meat that undergoes preservation with salt and nitrates to preserve the meat, extend its shelf life, and prevent spoilage, bacterial growth, and botulism.
The tender pork belly is most often used to make bacon, but there are other ways to appreciate this cut. Braise or roast it and enjoy the unique milky flavor – so different from cured bacon or conventional pork.
Pork belly not only provides rich flavor and taste but is also a source of high-quality protein, vitamins, and minerals.
What is Bacon? The bacon we most often encounter in the U.S. is streaky pork bacon, which is cut from the pork belly, or fleshy underside of the pig. It is technically pork belly, but pork belly isn’t necessarily bacon.
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Pat Moriarty
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