Futures markets rebound somewhat after fall from 'mad cow disease'
While the live cattle futures market has rebounded somewhat from Tuesday's losses amid reports of a case of BSE in a California dairy cow, traders are being cautious as they wait to see how consumers react, Purdue Extension agricultural economist Chris Hurt says.
Rumors of an animal with BSE, or mad cow disease, started circulating throughout the markets Tuesday before the U.S. Department of Agriculture made the official announcement of the discovery. On uncertainty over just what the information would be and concern of potential loss in consumer confidence in beef, futures prices fell by the one-day limit of $3 per hundredweight by Tuesday's closing bell.
But by the close of trading Thursday, the futures markets had recovered about 25 to 50 percent on nearby contracts, Hurt said.
"USDA has generally tried not to supply new information when the futures market is trading, but rather supply that before the day's opening or after the day's close," he said.
That policy allows USDA officials to make sure they have all of the necessary information before making an official announcement to the public. When the market got wind that an announcement was coming, however, traders made decisions based on worst-case scenarios.
But not only does Hurt expect little decline in domestic beef demand, he also doesn't expect much of a shift from the country's top three export buyers: Mexico, Japan and Canada. It's the fourth-largest export buyer, South Korea, that has the potential to make some waves.
Two of South Korea's three largest food retailers pulled U.S. beef from their shelves the day following the announcement. One has since resumed sales, while the other has not.
"Retailers there really have behaved very logically," Hurt said. "They are being cautious. They want to make sure they are providing their consumers with a safe product."
Although futures markets have recovered somewhat, Hurt said he expects traders to remain cautious in the coming days as they closely monitor consumer behavior and any new information from the USDA.
"They simply want to make sure that 'another shoe is not going to fall,'" Hurt said. "The ultimate impact on market prices will be determined by how consumers in the U.S. and foreign countries respond."
This is the fourth case of bovine spongiform encephalopathy in the United States - the first was in 2003. The latest case has been referred to as "atypical," meaning it was caused by a genetic mutation in the infected animal and not from contaminated feed.
The infected animal was found through the USDA's surveillance program and never presented a risk to the food supply or human health. BSE is not transmitted through milk.
Countries worldwide initially had zero-tolerance policies regarding the disorder, but as more scientific information became available showing little risk to human health, tolerance levels have been accepted.