Bacon is back on the menu as CME launches new pork-belly index

[CHICAGO] Almost eight years after CME Group eliminated its pork belly futures contract, bacon is back on the menu at the world's largest derivatives exchange.

The bourse is publishing the CME Fresh Bacon Index to provide price transparency for pork packers, processors, wholesalers and retailers, CME said in a statement Monday.

US wholesale prices for pork bellies, the cut used to make bacon, climbed this year as the deadly African swine fever virus decimated hog herds in China, the top hog producer and pork consumer.

But the market has been subject to gyrations. Volatility has increased amid soaring consumer demand for the meat, the US-China trade war and the pig-disease outbreak.

CME lean-hog futures trade in Chicago, but pork-belly pricing has been limited to the physical markets.

"As consumer tastes have evolved, bacon is now in demand year-round," Fred Seamon, CME's executive director of agricultural research and product development, said in the statement.

"This new index will provide greater price discovery."

For decades, CME offered futures for frozen pork bellies. The contract was made famous in part by its depiction in the 1983 film Trading Places, starring Eddie Murphy. However, as many food companies started purchasing chilled frozen bellies, but not frozen ones, open interest dwindled to almost nothing, prompting the exchange to delist the contract in 2011.

The CME Fresh Bacon Index sets a weekly bacon price each Monday, "based on a combination of negotiated and formula transactions, readily available from the USDA". The index will reflect the value of one load, or 40,000 pounds (18 tonnes), of fresh, skinless pork bellies in US cents per pound.

BLOOMBERG