Cattle futures tumbled after the United States confirmed its first case of bovine spongiform encephalopathy Dec. 23, and are now priced where they should be, given the closure of foreign markets to U.S. beef, said analysts.
“That’s where it should have been,” said Manitoba Agriculture livestock market analyst Janet Honey, referring to U.S. live slaughter steer futures selling in the mid-$70s US.
On Jan. 5, February live cattle futures were trading at $75.30 per cwt.
The tumble of about $20 was the result of U.S. beef being cut off from the world market, Honey and University of Missouri analyst Ron Plain said.
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“The price impact was simply driven by the lack of exports,” said Plain.
After BSE was discovered in a Washington state dairy cow, cash markets reacted swiftly with cattle futures prices plunging as quickly as they could.
Because futures prices have a cap on how much they can move up or down each day, it took futures prices until Dec. 31 to match the cash market’s decline, Plain said.
Statutory holidays, in which there is no trading, also slowed the fall.
On Jan. 2 and Jan. 5, cattle prices bounced back slightly.
Many contract months rose the maximum on Jan. 5 in reaction to U.S. efforts to restore beef exports with Japan and Mexico.
An American team was travelling to Mexico to provide information and encourage it to reopen its border. Also, Japan announced it was sending a team to the U.S. Japan was America’s largest beef customer.
Plain said the lack of domestic consumer backlash against beef in the U.S. also helped prices climb.
“So far consumers down here in the States seem to be indifferent,” Plain said. “They’re not changing their buying habits.”
Plain said the United States was exporting about 10 percent of its beef production before Dec. 23.
That beef will now be redirected to the North American market, and “in order to provide an incentive for consumers to eat that much, it’s going to be at a lower price than we want.”
Fortunately, the shutoff of Canadian and American exports is occurring when beef supplies are relatively short, the analysts said. The price might have to drop, but the beef will move.
“We can eat it,” said Plain.
If fed cattle futures remain in the mid-$70s, producers can cover their costs, and perhaps eke out a small profit, he said.
“In the big scheme of things, that’s not a bad price,” said Plain.
Honey said the wholesale price of beef in the U.S. has fallen, which should relieve retail grocers, who had been complaining that they were losing money because of the surge in beef prices in 2003.
If they can break even or make money, they will have an incentive to sell more beef.
American cattle producers had benefited from a price surge when the U.S. closed its border to Canadian beef and cattle after a case of BSE was confirmed in Alberta last May.
But that unexpected bonus is now gone.
“For U.S. producers it was very good news when they found that one cow in Alberta, and terrible news when they found that one cow in Washington,” said Plain.
Some analysts said the bounce in futures prices Jan. 5 would give temporary price stability, but the market’s direction in the longer term was harder to determine.
“I think in the short term we are done going lower, but I don’t think we are done going lower (in the long term),” Travis Benson, analyst with Colorado-based Crystal River Capital, told Reuters News Agency.
“If we see boxed beef prices continuing to deteriorate then we are going to see a further slide in the board.”
More than two dozen nations immediately halted U.S. beef imports, which accounted for about $3.2 billion US in annual sales.
Analysts said it is that sudden backwash of beef supplies frozen by the import bans that had the market concerned.
“We have a world of beef that is backed up because of the export bans. To get through that, that will mean some fire sales to clear it. So the product is not through going down,” Bob Anderson, livestock market analyst at Commodity Services Inc. in Des Moines, Iowa, told Reuters.
The National Cattlemen’s Beef Association said last week that there were 44,000 tonnes of U.S. beef in transit to the top six U.S. export markets at the time of the ban.
