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Pork bellies, more commonly known as bacon, are obtained from the underside of a hog. A hog has two bellies, generally weighing about 8-18 pounds, depending on the hog’s commercial slaughter weight. Slaughter weights now average about 255 pounds per head, equal to a dressed weight of about 190 pounds. Bellies account for about 12 percent of a hog’s live weight, but represent a somewhat larger percentage of the total cutout value of the realized pork products. Frozen bellies deliverable against futures generally weigh between 12-14 pounds. There are definitive seasonalities for pork bellies. Bellies are storable and the movement into cold storage builds early in the calendar year, peaking about midyear. Net withdrawals from storage then carry stocks to a low usually around October. The cycle then starts again. Retail bacon demand also follows an established trend, peaking in the summer when consumer preference shifts to lighter foods and tapering off to a low during the winter months. While demand patterns would suggest the highest prices in the summer and the lowest in the winter, just the opposite is not unusual. Such contra-seasonal price moves can be partially attributed to supply logistics, notably, the availability of frozen storage stocks deliverable against futures at exchange (CME) approved warehouses. When stocks prove either too large or too small the underlying demand variables for bacon can be relegated to the backburner as a market making variable. The fact that no contract months are traded between August and the following February adds to the price distortion that may occur in frozen belly futures, as seen in 1999. Belly prices (cash and futures) are sensitive to the inventory in cold storage. Also important are the weekly reports of net movement in and out of storage which afford some insight to demand, although a better measure is the weekly quantity of bellies being sliced into bacon. Higher prices tend to encourage placing more supply into storage by discouraging retail bacon demand. Bacon is not a necessary foodstuff, but demand can be buoyed by favorable consumer disposable income. On the flip side, however, dietary standards have changed dramatically in recent years that do not favor the consumption of bacon, a food known to contain high levels of fat and salt. Wholesale frozen pork belly prices, basis nearby Chicago futures, fell in mid-1999 to about $0.35 per pound, the lowest price since 1994 and about $0.25 cents below year earlier levels. Prices then recovered sharply, pushing into the mid $0.70 range by November, partly in response to the large number of hogs killed in North Carolina from Hurricane Floyd. Retail bacon prices started to climb in the fall, reaching $2.58/lb., about unchanged from a year earlier, but up about 8 cents per pound from midyear. The strong U.S. economy also buoyed demand and helped maintain a firm undertone to retail prices. U.S. foreign trade in bacon as a processed product is small. Imports are largely from Denmark and exports go to Eastern Europe. Futures Markets Frozen pork belly futures and options are traded on the Chicago Mercantile Exchange (CME). Futures are also listed on the CME in fresh pork bellies, but there is little to no volume in that contract at this time.
Excerpted from the CRB Commodity Yearbook.