Pork Bellies

Pork bellies are the cut of meat from a hog from which bacon is produced. A hog has two bellies, generally weighing 8-18 pounds, depending on the hog’s commercial slaughter weight. Slaughter weights average around 255 pounds, equal to a dressed carcass weight of about 190 pounds. Bellies account for about 12% of a hog’s live weight, but represent a somewhat larger percentage of 14% of the total cutout value of the realized pork products. Pork bellies can be frozen and stored for up to a year before processing. The pork belly futures contract at the Chicago Mercantile Exchange calls for the physical delivery of 40,000 pounds of frozen pork bellies, which have been slaughtered at USDA federally inspected slaughtering plants. Each deliverable belly typically weighs 12-14 pounds each.

There are definite seasonal patterns in pork belly prices. Bellies are storable and the movement into cold storage builds early in the calendar year, peaking about mid-year. Net withdrawals from storage then carry stocks to a low around October. The cycle then starts again. Retail bacon demand also follows a time worn 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 CME exchange-approved warehouses. When stocks prove either too large or small, the underlying demand variables for bacon can be relegated to the backburner as a market-moving factor. The fact that no contract months are traded between August and the following February adds to the late fall futures price distortion.

Belly prices (cash and futures) are sensitive to the inventory in cold storage and to the weekly net movement in and out of storage, which affords some insight to demand, although a better measure is the weekly quantity of bellies being sliced into bacon. Higher retail prices tend to encourage placing more supply into storage because of lower retail bacon demand. Bacon is not a necessary foodstuff so demand can be buoyed by favorable consumer disposable income. However, dietary standards have changed dramatically in recent years and do not favor the consumption of high fat and salt content food, like bacon. The U.S. economy stalled in 2002 at least relative to expectations, which would have been expected to reduce consumer bacon demand, but retail prices held firm, especially in the first half of the year. The anticipated 2002 average of $3.25/lb was unchanged from 2001, which was well above the annual average of the 1990's.

Prices – Pork bellies rallied in the first half of 2003 and posted a 7-year high of 103.30 cents/pound in late July on the weekly nearest futures chart. However, prices quickly fell back in August and then remained in the relatively narrow range between 80-94 cents/pound through the remainder of the year, closing at 86.90 cents. In the bigger picture, pork belly prices closed 2003 in the upper one-quarter of the range of roughly 40 cents to $1.00 seen in the past 7 years.