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Pork Belly Rally Belies Burdensome Supplies

May 14, 1989

Undated (AP) _ Pork belly speculators got a chance to fatten their wallets during an explosive rally on the futures market this past week but near-record supplies remain a drag on market.

Prices for future deliveries of frozen pork bellies on the Chicago Mercantile Exchange rose sharply in the week’s first three trading sessions, fell back a bit on Thursday, then shot up again on Friday. On Tuesday, most contracts surged the permitted daily limit of two cents a pound and the gains were nearly as strong on Wednesday.

Pork bellies for spot delivery settled Friday at 36.42 cents a pound, a gain of 5.47 cents or 17.7 percent during the week.

The advance stemmed partly from seasonal factors; hog and belly prices typically rise in the spring as the supply of mature animals dwindles and producers turn their attention from hog marketing to crop planting.

Another seasonal factor is increased demand for bacon - which is made from pork bellies - as an ingredient for bacon, lettuce and tomato sandwiches, a summertime favorite.

But experts say technical factors provided the main impetus for the week’s big move in the belly market. Technical signals derive from mathematical analysis of charted market patterns and technicians say the belly market, which had been in a decline since last spring, was grossly oversold and due for a correction.

An important technical trigger was tripped on May 4, when the price for spot delivery of frozen pork bellies dipped to 30.47 cents a pound, a 9-year low. Speculators began to buy the market the following day, a Friday, and stormed in when trading resumed Monday.

Despite the rally, the belly market is burdened with huge supplies, a factor likely to work against the normal seasonal strength.

The Agriculture Department reported last month that cold storage warehouses in the United States contained 133.8 million pounds of frozen pork bellies as of April 1, the second-largest April 1 total in history.

Chuck Levitt, the senior livestock market analyst with Shearson Lehman Hutton Inc., said the stockpiling continued through April and predicted the USDA’s next monthly cold storage report on May 22 would show 150 million pounds of bellies in stock as of May 1.

″We haven’t had that many bellies in storage in any month for at least 25 years,″ he said.

Levitt said retail markups on bacon are too steep to create enough consumption to shrink the mountain of pork bellies in the nation’s freezers.

Hog prices also advanced in the past week while cattle futures were little changed. Grains and soybeans

Prices generally fell as growing conditions improved. Rain helped the winter wheat crop in the central and southern Plains and raised hopes for drought recovery in the northern Plains and eastern Corn Belt. Energy

Prices finished the week little changed despite significant movement during the period. Prices drifted lower early in the week, then rallied Thursday on fears that political tensions in Panama could disrupt the movement of crude- oil through the Panama Canal pipeline. Precious metals

The market remained in the doldrums, awaiting clear-cut direction from the inflation front. When prices of goods and services rise, gold and silver tend to follow. MORE

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