In 1993, four people died and hundreds were sickened after eating E. coli-infected hamburgers at Jack in the Box restaurants...

Question: Why did the price of bacon quadruple following the news?Answer below...

Last year, I met John, a hog trader in Chicago. I stayed a couple of days in his house. It was enormous. He’s traded pork contracts for 35 years. John isn’t a market maker or a scalper. He’s a pure speculator. I asked him how he did it. Here’s what he said:

1. Know your market

“Every time I trade something other than hogs, I get killed. I just can't make any money in other markets. I once tried trading cattle futures, which you'd think would be similar to hogs, but they're not. The market moves in a totally different way. I have an edge in the hog market, and I expect to make money when I trade them.”

2. Have a plan that works and work your plan

“At all times, I know what the other traders are doing and I get there first. I look at the trade flows, I talk to people on the floor, and I know how the seasonal fluctuations work. This is my edge.

"In my 35 years, I've seen it all, so nothing scares me. While less experienced guys may be panicked out of a position on some unexpected news, I'd be more likely to double up.”

3. Discipline

“I only trade in relatively small quantities... trades that I can stomach if the market moves against me fast. People often ask, if I'm so good, why I don't increase my positions. But if you do that, you're guaranteed to take a big hit when your position is largest. I'd get wiped out in a flash.”

John says the fast-food industry is one of the most important factors in the meat markets. He told me the bacon story...

In order to regain the public's confidence following the 1993 E. coli hamburger scandal, the burger industry started cooking their burgers at much higher temperatures. It ruined the quality of their product, so they started adding bacon to all their burgers. It hid the taste of the burned meat.

Demand for bacon soared, and pork belly prices ran from 20 cents a pound to 90 cents a pound in less than 18 months. John got in... and it was one of his most profitable trades.

Here’s another one: the McRib sandwich.

The McRib is the most popular limited-time offer in the fast-food industry. The sandwich has a cult following. Some people love it so much, they travel from state to state just to find a McDonald’s restaurant with the McRib in stock.

They even mock the McRib in a Simpson’s episode. Krusty Burger introduces the “Ribwich” for a “limited time only.” Homer gets addicted to Ribwiches and travels around the country on a Ribwich tour.

The hog farmer I stayed with in Iowa last week told me every time McDonald’s reintroduces the McRib, it always marks a fantastic buy signal for pork prices. McDonald’s buys 250 million pounds of pork to make the McRib... about 2% of United States’ annual pork production.

Three weeks ago, McDonald’s announced the McRib is back for a “farewell tour.” After this limited-time offer, it will be retired from McDonald’s menu forever. To promote the sandwich, McDonald’s has set up a website – mcrib.com – and asked fans to show their support for the sandwich. More than 41,000 fans have already signed up.

The pork market has gone down since McDonald’s made the announcement. Could this mark the beginning of a bull market in pork bellies and live hogs? I’d better call Chicago John later this week and find out. More on pork to follow...

Good investing,

Tom