December 24, 2003
Economist: Mad cow case could cost beef industry $2 billion
WEST LAFAYETTE, Ind. A suspected case of mad cow disease in Washington state will have an immediate but not devastating impact on the United States beef industry, said Chris Hurt, a Purdue University agricultural economist.
Live cattle prices are certain to fall, costing cattle producers money, Hurt said. However, those losses will come on the heels of record cattle prices.
"The loss of U.S. beef exports represents about 10 percent of U.S. production," Hurt said. "If all other factors remain the same, we would look for a 12 percent to 16 percent drop in cattle prices. This probably adds up to a $2 billion hit to the beef industry at the farm level in 2004.
"The good news in all this, if there is good news, is that we're talking about a drop in prices from record levels. Live cattle were trading for $93 a hundredweight Tuesday (12/23). If you subtract 12 to 16 percent from that you're looking at prices in the high $70s to low $80s a hundredweight what we usually consider normal."
Hurt compared the drop in cattle prices to gasoline pump prices falling from $1.50 a gallon to $1.25 a gallon.
The beef sector is a major contributor to the total U.S. farm economy. This year alone, farm level beef sales are projected to approach $37 billion, up $7 billion from 2002. Total U.S. farm sales this year are expected to reach $210 billion.
The U.S. Department of Agriculture on Monday (12/22) announced that a dairy cow on a farm near Yakima, Wash., tested "presumptive positive" for bovine spongiform encephalopathy (BSE) commonly known as mad cow disease. The farm was quarantined, and USDA officials said infected tissue samples were sent to England for a final set of tests. Agriculture Secretary Ann Veneman said it was unlikely that parts of the diseased animal made it into the food supply.
Veneman said the risk to human health from BSE is "extremely low."
News of the suspected BSE case led Japan, South Korea, Russia, Thailand and Hong Kong to ban imports of U.S. beef. Other nations are expected to follow suit, Hurt said. In the near term, that means domestic beef supplies will increase, leading to lower retail beef prices.
"The retail system is going to have to absorb this beef, and I think it will," Hurt said. "We'll have to convince U.S. consumers to eat more beef at lower prices."
The U.S. beef industry is in a better position to recover from BSE today, thanks to lessons learned from previous mad cow outbreaks in Europe and Canada, Hurt said.
A Canadian BSE case was reported this past May. Seven months later, the Canadian beef industry is still reeling from export bans and an overabundance of beef supplies.
"This news from Washington is not as tragic as it would have been had it happened in the United States first," Hurt said.
"We've seen it take Canada about seven months to work through its BSE problem. The question is, can the United States do it in a shorter period of time? We'll have to go through the process of making sure the BSE is not more widespread and alerting our entire food system. Then, how long will it take for the rest of the world to feel confident enough that we have no more cattle infected before they begin to accept U.S. beef exports again?"
Fortunately, export markets aren't as critical to U.S. cattle producers as they are to Canadian producers, Hurt said. Canada exports more than 60 percent of the beef it produces, while U.S. beef exports make up only 10 percent of total domestic beef production.
Of greater concern is the internal production system in the United States, Hurt said. He predicted cattle feedlot managers would put off buying calves for the next few weeks, until cattle prices can react to these events and reach new equilibriums.
"That interruption would reduce the number of cattle in feedlots and, thus, grain markets also could suffer as a result of a temporary decreased demand for animal feed," Hurt said.
Writer: Steve Leer, (765) 494-8415, email@example.com
Source: Chris Hurt, (765) 494-4273, firstname.lastname@example.org