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FUTURES FILE, A COLUMN BY BREITINGER & SONS

Futures File: Bacon shortage to hit US?

Friday, October 5, 2012 - 3:19 pm

Fears about a shortage of bacon swept through media this week after the National Pig Association of the United Kingdom released a report warning that a “world shortage of bacon is unavoidable.” The total number of hogs in both Europe and North America has been declining due to the drought-related high feed costs which makes hog production much less profitable. Consequently, hog farmers have been liquidating their herds and more important, resorting to selling off their sows (adult females) which serve as the source of production for the future.

Pork bellies, a stalwart of Chicago commodity trading for decades, and the source of slabs of bacon, have become more precious as their potential scarcity is now publicized and debated in the “cash” markets. Pork belly trading ceased last year as the more popular lean hog futures contract took over trading volume. Pork belly trading was featured in the 1983 comedy “Trading Places,” which emphasized the huge risks and excitement bacon-trading has had on speculators.

Many analysts, including those of a major U.S. farm organization, believe the scare is “bologna” and that bacon supplies, at least in North America, will remain adequate.

At 1 p.m. Friday, lean hogs for October delivery traded at 81.32 cents per pound.

Employment numbers tarnish gold

Friday morning, the federal government reported that the unemployment rate had fallen to 7.8 percent, the lowest rate since January 2009. This drop in unemployment was accompanied by an additional 160,000 new jobs created in the private sector over the last two months, which was higher than expected by most economists. These two figures represented a rosier outlook for the economy and boosted stock market index futures, gasoline and copper, three markets that often follow overall economic strength. Conversely, investors sold off gold and bond holdings, which are often held as protection against negative economic news.

At 1 p.m. Friday, gold for December delivery traded at $1,783 per troy ounce.

Breitinger & Sons is a commodity futures brokerage firm in Valparaiso. The firm can be reached at 1-800-411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.