Daily Livestock Report For 08/03/2010 - Pork bellies hit all time record highs


Market Comments

It seems like everybody is talking about the high price of
fresh bellies, and for good reason. On Monday, USDA printed
the price of fresh pork bellies traded in the spot market (all
weight ranges) at $140 /cwt, the highest prices since at least
1996, when USDA began tracking the current weight ranges and
likely the highest price ever paid for fresh or frozen pork bellies. It
is kind of interesting that belly prices are now trading some 18
cents over the price of pork loins. There was a time when lean was
the name of the game as the industry was trying hard to beat

chicken and the “other white meat” phrase was born. At least at

the moment the consumer is opting for more flavor and those crisp
slices of fatty pork sure fit the bill.

The rise in the price of pork bellies is partly seasonal.
Much of the commentary in the press mentioned the high use of
bacon in the summer for BLT sandwiches. Also there is the proliferation
in the use of bacon as a flavor enhancer in the foodservice
industry, with many chicken and hamburger sandwiches getting a
slice or two of bacon for good measure. These are arguments that
we heard in the summer of 2004 as well and they reflect some of the
fundamentals driving the belly market at this time of year. What
they do not explain is what makes 2010 so different from other
years. Consumers did not discover BLT sandwiches in the summer
of 2010 and bacon has been burrowing its way in the menus of high
end and fast food restaurants for almost a decade. Part of the reason
is the price of hogs. While pork belly prices are sky high as the
top chart shows, the ratio of pork bellies to the price of hogs (i.e. the
relative price of the two) shows only modest variations in the last
five years (bottom chart). Indeed, in this respect the summer of
2003 and 2004 appears much more impressive since belly prices at
the time rose much faster than the price of hogs. With hog prices in
the mid 80s, bellies at 120-140 actually do not seem that crazy.
Another factor influencing belly prices this summer is the behavior of end users coming into the high demand time of year. End
users, be this retailers or foodservice operators, have always recognized the pick up in demand for bellies during the summer, as
evidenced by the normal buildup in belly freezer stocks during the spring. Hog production is down in the summer while belly demand
is up and users smooth out some of the price spikes by carrying over some winter and spring stocks. Last year, however, the
strategy did not seem to work and belly prices collapsed into the summer with prices in July at about the same level as in March
and then sharply lower in August. This year end users trimmed inventories, partly because of very high hog prices in the spring.
On June 1, freezer stocks were half of what they were the previous year. Pork production last week was 6.8% lower than a year

Vol. 8, No. 149 / August 3, 2010
PRICE OF 14-16# FRESH PORK BELLIES, USDA, WT. AVG.
0.020.040.060.080.0100.0120.0140.0160.019961998200020022004200620082010RATIO OF PORK BELLIES TO LEAN HOG CARCASS (IA/MN)
0.00.51.01.52.02.53.019961998200020022004200620082010$/CWTRATIO
ago (see yesterday’s DLR) and with freezers empty, end users are forced to pay top dollar for that additional spot load.

Get free real time CME Globex quotes at www.cmegroup.com/elivestockquotes.
The Daily Livestock Report is published by Steve Meyer and Len Steiner. Please forward to others that may benefit from this information.
To subscribe/unsubscribe visit www.dailylivestockreport.com.

Disclaimer: The Daily Livestock Report is intended solely for information purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any
commodities or securities whatsoever. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are
attempted. Futures trading is not suitable for all investors, and involves the risk of loss. Past results are no indication of future performance. Futures are a leveraged investment, and because only a percentage of a contract’s
value is require to trade, it is possible to lose more than the amount of money initially deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyle.
And only a portion of those funds should be devoted to any one trade because a trader cannot expect to profit on every trade.

CME Group is the trademark of CME Group, Inc. The Globe logo, Globex® and CME® are trademarks of Chicago Mercantile Exchange, Inc. CBOT® is the trademark of the Board of Trade of the City of Chicago. NYMEX,
New York Mercantile Exchange, and ClearPort are trademarks of New York Mercantile Exchange. Inc. COMEX is a trademark of Commodity Exchange, Inc. Copyright © 2009 CME Group. All rights reserved.