Tags: Mad | Cow | Beef | Exports

Mad Cow Case Isn't Expected to Hurt Record Beef Exports

Thursday, 26 April 2012 09:22 AM

The first time mad cow disease appeared in the U.S., beef exports plunged 82 percent. More than eight years later, the discovery of an infected dairy cow in California may do little to prevent shipments from surging to a record for a second straight year.

U.S. beef sales to buyers including Mexico, China and Japan will jump 6 percent to 1.34 million metric tons in 2012, exceeding last year’s record, which the government valued at $4.7 billion, said Global AgriTrends, a Denver-based researcher that advises meat companies, investment banks and hedge funds. The company affirmed its forecast after the U.S. reported its fourth case of mad cow since 2003 and first since 2006.

Detection of the tainted carcass before it entered the human food chain should bolster confidence that U.S. meat is safe, the United Nations’ Food and Agriculture Organization said yesterday, as cattle prices rebounded in Chicago. Canada, Mexico, Japan and South Korea, the four biggest buyers of U.S. beef, said they won’t halt purchases, bolstering prospects for agricultural exports that are a foundation of President Barack Obama’s goal of doubling U.S. sales overseas by 2015.

“The world market has shown that it can absorb any new mad cow information without causing a disruption in trade,” said Chris Hitch, the president of Hitch Enterprises in Guymon, Oklahoma, which owns two feedlots that can hold about 90,000 head of cattle. “International demand for beef is growing, and will continue to grow, with rising incomes in developing nations, especially Asia.”

Recovering Exports

Last year was the first that U.S. beef exports topped those of 2003, before the brain-wasting disease known as bovine spongiform encephalopathy, or BSE, was found in a Washington state cow imported from Canada. Shipments in 2004 plunged to 460.3 million pounds (208,789 metric tons) from 2.52 billion pounds a year earlier, as dozens of countries closed borders to U.S. beef and cattle futures had the biggest monthly drop ever.

Since then, the U.S. has reported three more cases of mad cow disease. During that period, domestic beef processors slaughtered about 271.9 million cattle, government data show. Canada had 17 cases since 2003, while the U.K. had 817, according to the World Organisation for Animal Health.

As importers eased restrictions, cattle futures rose to a record $1.315 a pound on Feb. 22 on the Chicago Mercantile Exchange, and retail-beef prices were the highest ever last month, government data show. When the U.S. Department of Agriculture reported a tainted cow carcass had been found on April 24, cattle plummeted the most in 11 months, dropping the maximum allowed by the CME to $1.11575, the lowest price since July. The next day, prices rose 0.7 percent.

Importers Buy

Japan won’t suspend imports because shipments are made under a framework that assumes the disease isn’t eradicated, Minoru Yamamoto, director at the farm ministry’s international animal health affairs office, said yesterday. Taiwan doesn’t plan to change existing rules, said Tai Yu-yen, chief secretary of the Council of Agriculture. Mexico’s Agriculture Ministry expects its cattle trade with the U.S. to remain unchanged, and European Union spokesman Frederic Vincent said the EU plans no measures in response to the case. Canada said the finding won’t affect trade with the U.S.

“On the basis of one case that’s isolated and the carcass had not entered into the food chain, we’ll see a knee-jerk reaction in cattle prices like we did,” said Steve Shafer, the chief investment officer at Covenant Global Investors, an Oklahoma City-based hedge fund that manages $320 million in assets. “That’s normal. If there’s no further cases, I wouldn’t expect any action at this point.”

Food costs

Farm exports in the U.S., the world’s largest agricultural shipper, in the year that began Oct. 1 will reach $131 billion, surpassed only by record shipments a year earlier, Joe Glauber, the USDA’s chief economist, said in February. Net farm income will reach $91.7 billion this year, second only to last year’s $98.1 billion, the USDA said on Feb. 13.

Food prices are rising, threatening food security for millions of people, with the cost increasing 8 percent from December to March, the Washington-based World Bank reported yesterday. Overseas markets have raised U.S. beef imports to control their own costs and supplement shrinking domestic supplies, said John Nalivka, the president of livestock- and meat-industry consultant Sterling Marketing Inc., an agricultural economic research and advisory company based in Vale, Oregon.

More Dependent

Importers are more dependent on U.S. beef than they were in 2003, said Nalivka, a former USDA economist. Natural disasters including the tsunami in Japan or disease outbreaks like foot- and-mouth diseases in South Korea have sent buyers overseas, benefiting U.S. producers.

Japanese imports of U.S. beef reached 456.2 million pounds last year, up from 11.6 million pounds in 2004 and the highest since buying 918 million pounds in 2003, USDA data show. Shipments to South Korea totaled 379.7 million pounds, or 585 times the total in 2004, when they plunged to 648,000 pounds from 586.6 million in 2003.

Japan restricts U.S. beef imports to cattle 20-months-old or younger as older animals are at higher risk of having the disease. The regulation was put in place when the Asian country resumed purchases in 2005 of American beef, which had been banned after the first case was discovered in the U.S.

Demand Risk

There remains a risk that demand for U.S. beef may slow. While Brett Stuart, the co-founder of Global AgriTrends and former economist at the U.S. Meat Export Federation, predicts U.S. shipments will rise this year, the latest government forecast before the latest case of BSE was for a drop of 2.3 percent to 2.725 billion pounds.

“We have just begun getting traction in Asian markets with very protectionist bents,” Peter Sorrentino, a fund manager who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati, said in an e-mail. “This will give them renewed firepower to push back on recent inroads.”

Japan, the third-biggest buyer of U.S. beef last year, has said it may ease its policy on limiting U.S. beef imports to cattle age 20 months or younger.

Japan Trade

The discovery of mad cow “could be an issue in the outlook for trade with Japan,” said Altin Kalo, a commodity analyst for Steiner Consulting Group in Manchester, New Hampshire. “The hope was that we would see a relaxation of the 21-month rule. This might delay that. Obviously, we’re speculating. We don’t know how the Japanese government will react. Certainly this does not help.”

It’s also too early to determine if U.S. shoppers will switch to other meats or food choices, said Peter Saleh, an analyst at Telsey Advisory Group in New York.

“Mad cow, from a consumer point of view, is seen as being pretty ominous, pretty scary,” Bob Goldin, executive vice president at Chicago-based restaurant researcher Technomic Inc., said in an interview. “I don’t think it means consumers won’t go to restaurants. If they’re concerned, they’ll probably order something else.”

While cattle futures are down more than 14 percent from their record in February, yesterday’s rebound means the market was affected less than in 2003, when prices plummeted 19 percent over five straight sessions after the Washington case was announced.

More Educated

More consumers are educated about the disease today, said Karl Skold, the president of food consultant Westside Economics and former head of commodity procurement at ConAgra Foods Inc. There are more safeguards in place than there were nine years ago, and the finding this time shows that the surveillance system works, Skold said.

“In 2003, when the Canadian case hit, that was a pretty dramatic upheaval,” said Elaine Johnson, an analyst at Cattlehedging.com in Westminster, Colorado. “Things have changed. We’re in a different situation inventory-wise. I don’t think there were any standards for how they were going to deal with the trade so the knee-jerk reaction was to slam the door. This time we shouldn’t see the slamming of the door.”

The animal arrived April 18 at a Baker Commodities Inc. facility in Hanford, California, where dead livestock are held before going to a rendering plant, said Dennis Luckey, executive vice president of operations at Los Angeles-based Baker.

Spinal-Cord Tissue

The age and the source of the animal in the latest case were being investigated, John Clifford, the USDA’s chief veterinarian said. Luckey said the animal was at least 30 months old and the disease was discovered as part of random testing conducted to meet USDA quotas. He said it’s possible that a diseased animal could be processed without being tested.

Scientists say the disease is spread through feed that contains brain or spinal-cord tissue from infected animals. People can get it from eating products containing such tissues, such as head cheese. Since 1997, feed made from mammals has been banned from cattle rations, and high-risk materials such as brains have been kept from the human food supply.

The latest BSE case was “atypical,” Clifford said, meaning that its disease form is very rare and not generally associated with an animal consuming infected feed. Such cases can occur spontaneously in older animals, said Guy Loneragan, an epidemiologist and professor of food safety and public health at Texas Tech University in Lubbock.

“No doubt, this increases the existential threat to the U.S. livestock industry, but only marginally,” Nick Higgins, an analyst at Rabobank International, said in an interview in London. “Without further cases, it won’t have a sustained impact on prices.”

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Thursday, 26 April 2012 09:22 AM
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