A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3068
(November 18, 1999) PORK BELLIES: The demand for pork bellies seems little short of phenomenal at this point. The scattergram illustrates this point. We have plotted average November cash prices for pork bellies versus the estimated monthly supply. The diagonal line A-A represents the demand curve for pork belly prices during the 1981-1994 period, indicating the price at which consumers would probably eat through the quantity supplied. However, usage apparently improved in the 1994-95 period, to the point where the line B--B more reasonably represented the demand curve for the mid-to-late 1990's.
November Belly Situation
We manufactured rough estimates of November 1999 conditions in order to place them in this context. We assumed ending October frozen stocks would fall to 14.0 million pounds, and forecast November daily slaughter would fall 3% under year-ago levels. We simply used the average cash market price for November 1-13 as a proxy for this month's average. The resulting data point appears toward the upper right-hand corner of the graph, despite a supply estimate virtually even with last year's total.
We attribute the increase to a combination of aggressive advertising of bacon-topped sandwiches from the fast-food industry, high-protein diets, anticipation of further export aid to Russia and possible buying from Japan and South Korea.
Given the uncertainty surrounding the current situation, we recommend avoiding pork belly futures.
Dan Vaught