Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Bacon & Copper

Jul 28, 2017

Bacon Mania

Nowadays, it seems that bacon is everywhere: on sandwiches, on sticks, and even at festivals devoted to the fatty delight. Americans’ love for bacon has hit a new extreme, and is now cutting into supplies and shooting prices higher.

Bacon is made from a cut of meat known as pork belly, and increasing appetites for bacon have drained supplies of frozen bellies by 65% over the last year, dropping them near record low levels. Meanwhile, pork belly prices have nearly doubled in the past two months, sizzling over $2.10 per pound and nearing the all-time high of $2.35 set during the hog shortage in 2014.

This time around, the shortage is limited to bacon alone; total pork supplies are above average levels and the national hog herd is at a record large size. This disparity should give creative chefs extra incentive to cook up cheap chops, tenderloins, ribs, and sausage instead of bacon.

Pork belly futures used to be one of the wildest commodity markets, but the Chicago Mercantile Exchange ceased trading the market in 2011 due to lack of traders, a move that many have cited in making prices even more volatile. Without an open marketplace for buyers and sellers to set transparent prices, transactions are now more opaque and prone to exaggerated swings.

 

Copper Fires Higher                  

Copper rattled to a two-year high this week, nearing $2.90 per pound. Prices are rising as strong demand and mining shortfalls strain global supplies.

Major mines in Chile and Indonesia are hamstrung by striking workers, and Canadian mines in British Columbia are still shut down due to widespread wildfires in that province.

Meanwhile, investors are flocking toward the red metal on expectations that strong U.S. economic growth could increase demand for housing, automobiles, and electronics, all sectors that are major copper consumers. An expected resumption of growth in China and Japan could stimulate even more buying as our weakening U.S. dollar could add fuel to the red-hot copper fire.

As of midday Friday, September copper futures traded for $2.88 per pound, up 16% over the last 10 weeks. The copper futures contract contains 25,000 pounds of refined copper, and each one-cent move equates to $250 in an investor’s account.

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