Traverse City Record-Eagle

Business

October 6, 2012

Futures File: Bacon shortage bologna?

Fears about a shortage of bacon swept through the 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 drought-related high feed costs, which makes hog production much less profitable. Consequently, hog farmers have been liquidating their herds and, more importantly, resorting to selling off their sows (adult females), which serve as the source of production for the future.

Pork Bellies, a stalwart icon 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. As a side note, Pork Belly trading was featured in the 1983 comedy, "Trading Places," which emphasized the huge risks of bacon trading and the excitement it creates among speculators.

Many analysts, including those at a major U.S. farm organization, believe the scare is "bologna" and that bacon supplies, at least in North America, will remain adequate. Early Friday afternoon, lean hogs for October delivery traded at 81.32 cents per pound.

Employment numbers tarnish gold

In an announcement Friday morning, the federal government reported that the unemployment rate had fallen to 7.8 percent, the lowest since January 2009. This drop in unemployment was accompanied by the creation of an additional 160,000 new jobs in the private sector over the last two months, which was higher than expected by most economists.

These two figures represent 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.

Early Friday afternoon, gold for December delivery traded at $1,783 per troy ounce.

Opinions are solely the writer's. Walt Breitinger is the president of Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.

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