Just as beef and pork markets were recovering from the demand effects of negative coverage on lean finely textured beef (LFTB), here comes another blow that could keep the negativity percolating a little bit longer, a new case of BSE. USDA released a statement on April 24 that read “As part of our targeted surveillance system, USDA's Animal and Plant Health Inspection Service (APHIS) has confirmed the nation's fourth case of bovine spongiform encephalopathy (BSE) in a dairy cow from central California… Samples from the animal in question were tested at USDA's National Veterinary Services Laboratories in Ames, IA.
Confirmatory results using immunohistochemistry and western blot tests confirmed the animal was positive for atypical BSE, a very rare form of the disease not generally associated with an animal consuming infected feed."
The first questions following a BSE outbreak are: where did it happen? what is the variant of the disease; and what is the age of the animal in question. The USDA statement did not give us an answer to the last question but the fact that the lab tests found it was an "atypical" form of the disease should be seen as positive.
Feed is a conduit for the transmission of the disease and if the bovine had a regular variant of the disease it may have brought into question the effectiveness of the feed ban that has been in place since 1997. FDA strengthened the feed ban in 2008, removing specified risk materials (brain spinal cord from cattle 30-month or older) from animal feed.
“The 2008 rule also prohibits the use of entire carcass of cattle not inspected and passed for human consumption, unless the cattle are less than 30 months of age, or the brains and spinal cords have been removed.”
Current rules make the disease a non-event for the regular consumer but there may still be a psychological effect. There is never a good time for these kinds of stories but after all the negative press about LFTB in ground beef, the last thing the beef industry needed was for more stories about BSE and Mad Cow Disease.
The effect on domestic demand at this point is unknown and unknowable. This is not the first case of BSE in the US and, in the past, the demand effect of BSE outbreaks has been relatively limited. The latest case of BSE in the U.S. was on March 15, 2006. Those looking at futures charts will note that June 2006 cattle bottomed out not long after the outbreak and then rose sharply as beef demand, both domestic and export, was not affected.
But cattle were trading at $75/cwt. then and exports made up a little less than 5% of U.S. beef production. Today, cattle are trading at $120/cwt. and exports account for 10% of all beef produced here. We are also importing a lot less beef than we did in 2006, so the supply effect of exports is even more pronounced.
We think the impact of the recent BSE case on US beef exports will be limited. Beef exports in April and May 2006, the two months following the last U.S. BSE case, actually rose 84% from the previous year. At that time, Mexico and Canada were the top export markets and shipments to Asia and Russia were very limited. How Asian markets and Russia respond to this latest outbreak will be critical and we think the response will be restrained.
The U.S. is recognized by OIE (World Animal Health Organization) as a country with “controlled risk for BSE.” Our trading partners recognize this and trade on this basis. This does not mean that some countries may not suspend trade but most are likely to continue to do business as usual.
It is possible that the discovery may further delay U.S. negotiations with Japan to lift the age of cattle that qualify for export to that country, raising it from 21 month to 30 month. Markets were hoping this issue would be resolved shortly and this latest case could prove to be a further complication.
Following the announcement, live cattle futures fell the permissible daily limit but then bounced back in overnight trading. In the short term, the market may play defense until it sees evidence of the effect on U.S. consumer demand and exports.