Futures trading history buffs are in mourning today, as the CME moves into a brave new world without pork bellies futures contract trading. The oldest existing CME livestock futures contract has seen a sharp decrease in volume over the years as the food processing industry transitioned away from the slabs of frozen pork and towards fresh meat.
Pork bellies have long been synonymous with all that is wrong with the futures markets because of their high volatility and reputation for terrible fills. They were also the butt of futures industry jokes more often than not, whether because of their silly sounding name or Eddie Murphy’s uncanny ability to call their price in the classic movie ‘Trading Places’. But their death has been a long time coming – as commentary from Dan Collins on the Futures Mag website highlights, those trading pits have been gone since 2007, when the CME transitioned pork bellies to a purely digital trade.
Before we get too nostalgic for the old days, it’s probably important to put these changes in context. Pork bellies may be gone, but we’ve come a long way in trading volume since the Chicago Board of Trade listed the first standardized futures contracts in 1864. Just one part of the futures trading business – managed futures – has seen total assets under management increase 940 fold (no, that’s not a typo) since 1980 [as of the 1st quarter of 2011 according to Barclay Hedge data, this gain is both from new investment and returns on investment] . The times, they are a’ changing alright, but it’s less about futures trading dying than it is growing up.
Second, the closing of the pork bellies contract is reflective of the fact that managed money is not the only driver of futures markets (are you listening, D.C. politicians?). Pork bellies contracts didn’t die just because the so-called speculators decided they didn’t like them. They died because demand- the most fundamental driver of all- evaporated as a result of innovation in another corner of the business world. When the demand evaporated, these speculators recognized it and put their money elsewhere, where higher volume fosters more liquidity and opportunities to invest.
Still, at the end of the day, a piece of history is passing with the elimination of the pork bellies contract. As we bid adieu to the past, we have to wonder, what does the next chapter hold for the futures industry?
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