Not even the BLT can pull up pork belly prices

July 24, 1994|By Bloomberg Business News

CHICAGO -- Cut up a firm, sweet, home-grown tomato; add a pile of crispy bacon slices, a glob of mayonnaise and a few leaves of crunchy lettuce; slide it all between two slices of fresh toast and you've got an American classic: a BLT.

It's enough to make mouths water -- and to power the nearly $16 billion-a-year pork belly market on the Chicago Mercantile Exchange. A pork belly is basically a slab of bacon that hasn't been sliced, cooked, cured and smoked.

That cravings for BLTs can drive the pork belly futures market is "conventional wisdom in this industry," said Jens Knutson, economic researcher with the American Meat Institute in Arlington, Va. "The industry even refers to this time of year as,'The BLT season.' "

Supermarkets know the pattern. "We always see an upsurge in bacon sales this time of year," said John Shepherd, a spokesman for Safeway Inc., an Oakland, Calif.-based company that has more than 1,100 retail grocery stores.

Americans' appetite for BLTs helps clear backlogs of frozen pork bellies from industry warehouses. While bacon processors prefer use fresh pork bellies, they turn to the frozen supplies when demand for BLTs peaks.

But this year, things are out of whack. Hog production has been so high that even the usual summer sandwich-munching hasn't been able to halt a dip in pork belly prices.

Since Feb. 2, when bellies reached the year's high of 60.8 cents a pound, prices have fallen nearly 47 percent.

The annual BLT binge reflects the availability of fresh tomatoes in the summer, as well as the ease of preparing the sandwich in hot kitchens across America.

"The best time for bacon sales tends to be late July and August, and sometimes September, depending on the weather; it's a tradition," said Bill Kuecker, director of deli/prepared meats and scientific affairs for the National Livestock and Meat Board in Chicago.

Americans also request more BLTs when they're on the road during the summer. At Denny's restaurants, BLT demand since April is up some 10 percent from the October-through-March period, according to Karen Randall, director of public relations for Flagstar Cos., Denny's parent company.

"Sales of pork bellies almost always increase during the summer months, and the BLT has a lot to do with it," said Gary Mickelson, manager of communications with the Dakota City, Neb. based IBP Inc., one of the largest meat packers in the country.

"We see sales pick up in May, and generally that lasts through September."

More bacon is sold during the late summer than at other times of the year, according to sales figures obtained from the Nielsen North America marketing research company of Northbrook, Ill.,

During the five-week period ending Sept. 11 last year, weekly bacon sales at retail food stores averaged $24 million, the highest of the year. Weekly sales were their lowest of the year during the four weeks ending May 8, when they averaged only $19.4 million.

Overall, retail bacon sales rose 2 percent in 1993 from the previous year to $1.133 billion, which makes it the third-most popular item in the refrigerated packaged meat category, according to Nielsen. Sliced lunch meat generated the most sales at $2.12 billion, with frankfurters second at $1.465 billion in sales.

Mr. Mickelson of IBP said there has been growing demand for bacon from food service companies "particularly during the summer months" for other kind of sandwiches besides the BLT, including the popular bacon cheeseburger.

So this year's decline in pork belly prices isn't an indication that Americans are losing their taste for bacon, as they did amid a health scare over preservatives and fatty diets a few years ago.

Rather, hog farmers have produced so many bellies that bacon processors are finding they can meet all their needs in the fresh belly market. And that's driven the frozen futures market to its knees.

"This is premium bacon season," said Joe Arata, senior livestock analyst with Merrill Lynch in New York. "They should be taking them [frozen bellies] out of storage now very quickly, and they're not."

Pork belly futures rallied briefly this month amid optimism about "BLT season," only to plummet a few days later to a two-year low amid concern excessive supplies are overwhelming processor demand.

The good news for bacon consumers is that this is translating into lower prices at the store. In June, the average price of bacon fell to $1.985 per pound, the lowest for the year. Bacon averaged $2.016 per pound in May and $2.063 in April.

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