July 15, 2011 11:35 pm

No future for Chicago pork belly contracts

The frozen pork-bellies futures contract, a staple of Chicago’s commodity markets for a half century, was unceremoniously killed after traders abandoned it.

The Chicago Mercantile Exchange announced its demise in a terse notice. “Because of a prolonged lack of trading volume and after significant discussion with industry participants, CME will be delisting frozen pork bellies futures and options” effective Monday, exchange parent CME Group said in a report to traders. said.

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Pork bellies, used to make bacon, were once an anchor product at the CME. Launched in 1961, the contracts were used by slaughterhouses and food companies hedging price risks and speculators taking a punt on price direction.

As bellies futures predated the creation of financial futures, some traders also used them to protect against macroeconomic risks, said John Lothian, president of the electronic trading division at brokers Price Futures Group in Chicago.

“In the early 1970s, there were people that used pork bellies as an inflation hedge,” Mr Lothian said.

Volume and open interest in the contract peaked in the early 1980s, just before the Hollywood film Trading Places introduced the market to the general public.

Since then, the bacon business has changed, with consumers eating more year-round, requiring less need for cold storage and so less need to hedge the frozen meat for sale in summertime.

“People don’t put bellies into storage the way that they did. It’s all fresh bellies these days,” Mr Lothian said.

CME was last year reportedly examining ways to revive the contract, including trades settled in cash rather than physical delivery.

But open interest disappeared in February. In May, CME informed regulators it was deleting its list of storage warehouses approved to take delivery of the 40,000lb contract.

Companies still hedge some pork costs with CME’s lean hogs futures contract. CME July lean hogs on Friday settled at 95.15 cents a pound, up 22 per cent from a year ago. Pork belly prices, as measured by the US Department of Agriculture, are about $1.30 a pound.

Elsewhere in commodities, gold dipped from its record high on Friday as a surge in prices encouraged consumers from Asia to the US to sell their gold for scrap. Nonetheless, the yellow metal remained within reach of the psychological barrier of $1,600, trading on Friday at $1,588 a troy ounce, down from a nominal record of $1,594.16 touched on Thursday but still up 3 per cent over the course of the week. scrap.

Nonetheless, the yellow metal remained within reach of the psychological barrier of $1,600, trading on Friday at $1,588 a troy ounce, down from a nominal record of $1,594.16 touched on Thursday but still up 3 per cent over the course of the week.

The surge came amid a week of political and economic turmoil across much of the developed world, sending investors rushing to bullion as a means of protecting their wealth.

Additional reporting by Jack Farchy

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