(Most recent update: Apr 27 11:00 AM)
Yesterday, USDA reported a fourth confirmed case of Bovine Spongiform Encephalopathy (BSE). The animal was a dairy cow located in California. The case was reported as “atypical” meaning, USDA said, it was not from infected feed. The market reacted negatively when the news broke and closed down limit ($3/cwt) for 2012 contracts and by more than $2/cwt on more deferred contracts.
“As part of our targeted surveillance system, the U.S. Department of Agriculture’s (USDA) 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. The carcass of the animal is being held under State authority at a rendering facility in California and will be destroyed. It was never presented for slaughter for human consumption, so at no time presented a risk to the food supply or human health. Additionally, milk does not transmit BSE.” — USDA Chief Veterinary Officer John Clifford
Update (Apr 25 11:30 AM):
Markets appear to have over-reacted to yesterday’s news. Most 2012 contracts are up roughly $1/cwt. The previous U.S. confirmed case (March 2006) saw contracts drop by about $0.50/cwt on the day of the announcement, followed by a correction of about $0.20/cwt. The sharp losses were not realized until a week after the news broke when contracts proceeded to lose about 8-10% of their pre-confirmation value. Time will tell if this pattern is repeated.
Three things to keep in mind:
- Price levels were at $80-$85/cwt in 2006.
- The U.S. beef industry was much less dependent on exports in 2006. For perspective, 2006 exports were 60% smaller than 2011 exports and 2011 marked the first year of exports above pre-2003 BSE levels.
- Seasonally prices are dropping at this time of year even without all the negative news.
The current market has been driven in a large part by strong exports. USDA claims this current case should not have an impact with our trading partners. This is likely one reason that markets have improved today. However, it would not be surprising if some degree of pushback from importers is seen in the coming weeks as this continues to develop.
Update (Apr 27 11:00 AM):
Indonesia has suspended U.S. beef imports. Export data to Indonesia is sketchy at best. USDA’s Foreign Agriculture Service shows net export sales to Indonesia of 16 metric tons in 2011 and 25 metric tons in 2010 (sales through April 19 of each year). No sales are reported yet for 2012 (unsure if data is not available or if no sales have been made).