Pork belly trading in danger?

December 28, 2010 (CHICAGO)

For nearly forty years, Grant Park Packing specialized in pork.

"Pork belly is exactly what it sounds like -- it's the belly of the pig and that's where your bacon comes from," said Lucia Maffei, Grant Park Packing.

The company has seen even more demand for pork.

"It's a hot commodity now, even more so than ever, pork being the new white meat," Maffei said. "Bellies, bacon -- very hot item these days."

On a daily basis at the Chicago Mercantile Exchange (CME), 20,000 hog contracts are traded, and that's hogs as a whole. The demand here is for the whole hog, not frozen pork bellies.

"The industry wants a skinless contract, that's what the slicers or bacon processors want. Ours is a frozen skin on contract," said CME trader Jeff Carter.

Carter says those contracts will likely adapt to what the market demands, despite the history of pork bellies at the CME.

Frozen pork bellies historically would help producers hedge against price fluctuations, but the food companies are not storing as much and don't need that type of contract to hedge.

"The CME is working on developing a contract that's more applicable to today's market rather than the 1961 market," Carter said.

Another issue with pork bellies is that price reporting had been voluntary. There are now efforts to regulate price reporting. If the pork belly contracts are modified, it could lead to lower prices on bacon.

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