The once-raucous pork-belly trading pit at the Chicago Mercantile Exchange (CME), featured in the 1980s Dan Aykroyd-Eddie Murphy comedy "Trading Places," will fall silent, swept aside by the rush to do business on screens.
It will be the passing of an era, another step in Chicago's evolution from "Hog Butcher for the World" to a top financial center with the $12 billion July merger of the CME and Chicago Board of Trade into the world's largest derivatives market.
"It used to be the most tradable market in the world in its heyday," said Bill Cipolla, who traded pork belly futures for 25 years before switching to another market. He was sorry to see the "end of an icon in the futures trading world."
The CME-CBOT combined company, CME Group Inc., said Tuesday that frozen pork belly futures and options will exclusively trade on its electronic platform from May 2008.
Pit trading of frozen pork belly futures, introduced in the 1960s, has been slowly dying amid changes in the food industry and pork production that began in the 1990s.
Placing pork bellies into cold storage, thawing them out and then processing them is an old way of doing business. These days, more fresh bellies go directly into bacon processing.
The pork industry is also working with fast-food companies to produce more hogs that come to market during the summer.
Belly Pit Drew Speculators From Afar
During its heyday, the pork belly pit was abuzz with activity, much like a casino, drawing speculators from as far away as Saudi Arabia, lured by the high volatility in prices.
The bright lights began to dim as other commodities markets emerged, luring investors into currencies, gold, crude oil, and other commodities.
"There were many more options to trade and bellies drifted under the radar. Instead of four slices, the pie was sliced up 50 ways," Cipolla said.
"Pork bellies ... just their name is an icon," he added.
Changes in the pork bellies contract itself and in the bacon business also led to a reduction in commercial players.
"The market has become antiquated. It used to be an elite contract," said Harvey Paffenroth, a belly trader since 1971. He noted that buyers are looking for fresh bellies, not frozen ones, and that they also demand more pre-processed bacon.
Those changes came along when McDonald's Corp. (MCD), Wendy's International and other fast-food restaurants started promoting the bacon burger and needed the bacon to be a certain size and ready in the box.
Many changes to the belly contract were also made that allowed for a somewhat lower-quality belly to be eligible for delivery against the CME futures contract.
"It's not a prime belly anymore -- it's become a dumping ground for less desirable bellies," added Paffenroth.
CME launched its Globex electronic trading platform in 1992 and bellies were listed in 2003.
Electronic trading in other CME products has been surging.
In 2000, Globex trading volume was 34.5 million contracts, up 114 percent from 1999. By 2006, volumes soared to 1.015 billion, or 72 percent of all CME traded contracts.