THE CHICAGO COMMODITIES PROBE : CLOSEUP: FROM PLATINUM TO PORK BELLIES
The trading pits in Chicago may seem far away from most consumers, but many of the farm and financial products represented there and elsewhere in the futures markets are part of everyday life.
When traders talk about pork bellies futures, they are speculating on the eventual price of bacon. When investors show interest in frozen concentrated orange juice futures, they are betting on whether a cold freeze this winter in Florida will affect the price of juice. They even speculate on the price of heating oil and cocoa.
Take corn futures, for instance, traded on the Chicago Board of Trade. Long before a farmer’s corn crop is ready for harvest, he makes a contract to supply, say, 5,000 bushels of corn on a certain date at an agreed upon price.
That contract to supply the corn then develops a financial life of its own. For months, while the corn is still growing, the contract is traded back and forth and its price goes up and down. The national outlook for the corn crop, weather, international demand, crop diseases and government subsidies all affect the supply and demand for corn and, thus, the price of the futures contract.
Here is a look at some of the more popular and better-known items traded in the futures markets.
JAPANESE YEN: The yen is the official currency of Japan. The U.S. trade deficit and the strength of the Japanese economy cause the yen to rise and fall against the dollar on foreign exchange markets. Speculators buy yen futures on the Chicago Mercantile Exchange’s international money market. T-BONDS: Treasury bonds are issued by the U.S. government with maturities of 10 years or longer to finance long-term debt. Trading in T-bonds futures represented about 30% of major futures trading in 1987. Traded on the Chicago Board of Trade. S&P; 500 INDEX: The Standard & Poor’s credit rating firm has compiled an index of 500 stocks intended to represent broadly the stocks traded over the counter and on the New York and American stock exchanges. This index goes up and down based on the prices of the 500 stocks. Trading in futures contracts is based on expectations of how the S&P; 500 will perform. Traded on the Chicago Mercantile Exchange. SOYBEANS: Used extensively as livestock feed in the form of soybean meal. Soybean oil is used to make such food products as shortening, margarine, cooking and salad oil and other products such as paint and varnish, resins and plastics. Futures and options are traded on the Chicago Board of Trade. COCOA: Cocoa is primarily used in chocolates and candles of all kinds, as well as in semiprocessed products such as cocoa liquor, butter and powder. Traded on the Coffee, Sugar and Cocoa Exchange in New York. PLATINUM: Platinum and its associated metals, rhodium and palladium, are used in catalytic converters in cars. Japan is the world’s largest consumer of platinum jewelry. Platinum and palladium futures are traded on the N.Y. Mercantile Exchange, and platinum futures are also traded on the Tokyo Commodity Exchange for Industry. PORK BELLIES: The layer of meat and fat from the underside of hog from which bacon is sliced. Prices are sensitive to inventory of bellies in cold storage and how much is being turned into bacon. Bellies generally account for about 12% of a hog’s live weight. Traded on the Chicago Mercantile Exchange. CORN: Sold primarily as feed for livestock and poultry and is processed to make sweeteners, starch, fuel and alcoholic beverages. The United States is the world’s largest producer and exports corn to South Korea, Mexico and Japan. Futures and options are traded on the Chicago Board of Trade and futures on the Mid-America Commodity Exchange. SILVER: Used in photographic materials, electrical and electronic products such as contacts and conductors, batteries, sterling tableware, jewelry, mirrors, coins, dental and medical uses and brazing alloys and solder. It is traded on the N.Y. Commodity Exchange, the Chicago Board of Trade, the Mid-America Commodity Exchange and the London Metal Exchange. COFFEE: The second-largest cash commodity in the world, after oil. Weather problems such as drought or frost will decrease production and the price will increase. Traded on the Coffee, Sugar and Cocoa Exchange in New York.
