Selling Pork Bellies Futures

"Pork bellies, Sell, Moritmer, Sell!" This immortal line from one of the funniest movies ever made, Trading Places, still holds its humor 25 years later. This is where I first heard the term "pork bellies", the name alone elicited howls of laughter from the theater. What exactly are pork bellies and how are they traded? Here's a brief overview of the pork belly market and what you need to know to get started trading in it.

The actual full name for pork bellies is Frozen Pork belly Futures. A Pork belly is the stomach meat of a pig. Bacon in the United States and several other countries is made from Pork bellies. It is also very popular in China and Korea where it is served as entire slabs and not sliced as finely as bacon. An average Pork belly weighs about 13 pounds and since they are frozen have a very long shelf life. Belly futures started trading on the CME way back in 1961 and were created as a way meat producers and large scale users could hedge against volatile live hog prices.

One futures contract reflects 40,000 pounds of Pork bellies cut and trimmed, in other words, ready to sell. Each point is worth .0001 per pound or $4.00. They are traded on the floor and electronically via GLOBEX in the 5 months of February, March, May, July, and August. The ticker symbols are PB on the floor and GPB via GLOBEX. The exchange imposes price limits of $0.20, $0.30 and $0.45 per pound, however these limits are expandable under exchange rule 8302D. The position limits are 1000 contracts in all contract months combined or 800 contracts in any one month. These limits include both long and short positions and are designed to prevent attempts to corner the market. The minimum fluctuation or tick size for Pork bellies is $10.00. The margin requirement is $1620.00 per contract to initiate a position and $1200.00 to maintain the position.

As you can see from the daily chart, 'bellies seem to be basing around the 72-74 area and may be setting up for a run back into the low 80's. Looking at the long term chart, it seems to trade in a very defined range up and down.

David Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.