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This Little Piggy Went to Market

November 02, 1995|RUSS PARSONS

American's apparently insatiable appetite for bacon cheeseburgers is having a dramatic effect on the price of pork bellies.

In the commodities market, where fortunes are made and lost on such matters, pork bellies (that's what bacon comes from) skyrocketed from the mid-$40s per hundredweight several weeks ago to more than $60 last week. They've now settled in the mid-$50s.

What's behind the rush? It seems that almost every burger chain in the United States added a couple of strips of bacon to their cheeseburgers this summer. Two pieces of bacon might not sound like much, but when you multiply them by however-many-million burgers sold, it adds up quickly. As a result, supplies of pork bellies have been drawn down to the lowest levels in several years. The amount of bacon in freezers this month is 35% less than last year.

But none of this should affect the price of bacon in your local grocery store. Steve Reed, an agricultural economist at the Department of Agriculture, explains that the retail system has been designed to flatten out highs and lows in the market.

"Most of that volatility is buffered from consumers," he says. "The supermarkets figure consumers want stable prices over time and so retailers gradually adjust to much wider shocks."

In essence, what happens is that, rather than raising and lowering prices with every twitch of the market, processors and retailers gradually move prices up, then gradually move them down when prices fall.

As a result, despite the more than 50% increase in the price of hog bellies, the price of bacon moved up only 3% at wholesale and probably won't budge much at retail at all, unless the high prices continue. But when prices drop, don't expect to see an immediate discount in the price of bacon, either.

For example, while the commodity prices of pork butt and ham are up--almost 50% from last year for pork butt, about 28% for ham--the wholesale prices of those two cuts are actually down slightly.

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