Mad Cow creams cattle, while hog prices look cheap despite supplies

Cattle ends limit down on Mad Cow scare

Cattle, feedlot, beef Cattle, feedlot, beef

Hogs: Futures did a great job in resisting the pressure from cattle. Theoretically, if we can’t export beef due to new bans, then we “could” make a case for that meat being left in the U.S. and drowning the U.S. consumer in red meat. However, there should be no real impact on beef exports due to the BSE finding. While we want to write this BSE story off, we must point out it could delay temporarily a rally in hogs.

Seasonally, this market should be concerned about declining slaughter levels into summer. However, this is a weak demand situation. We have a 1% to 2% increase in pork production and yet wholesale pork prices at 19% lower than last year! We think this market is incredibly undervalued but will not attempt to buy this yet…Rich Nelson

Cattle: Markets fell to limit down today on rumors of another case of BSE (Mad Cow) in the U.S. USDA later confirmed that rumor with a press briefing in the afternoon. A dairy cow, of an unspecified age, was found in Central California with BSE.

This is the fourth case of Mad Cow in the U.S. Our first case, on Christmas Eve of 2003, caused a virtual standstill of exports in the weeks that followed. February 2004 cattle futures went from 90.67 down to 71.17 in five days after the first finding. A second and third case was found in 2005 and 2006 with minimal market impact. As time went by we regained our export foothold, this time with limitations.

Today’s case of BSE will not cause any new bans on US beef. It came from a dairy cow that was sent to a rendering plant (would not have made it into the domestic or export markets for human consumption). Most of our beef exports are to countries with limitations on our product due to our 2003 initial case.

International standards suggest cattle under the age of 30 months generally do not develop BSE. That is why most trading partners have an under 30 of age standard. Japan has a more stringent standard of 20 months and under as they had some select cases in young 20 – 22 month old cattle. Lastly, we don’t allow the parts of the animal that contain “risk” materials such as the brain and spinal column into the domestic or export human consumption market.

Exports will likely dip slightly over the next two months but should not wholesale collapse. The real issue is U.S. consumer demand. We have lamented for weeks about how quickly beef and pork demand unwound due to high gas prices and the media’s hype over “pink slime.” Normally, U.S. consumers do not care at all about Mad Cow or e-coli meat safety scares. This time, we are coming off of an already weak domestic demand situation. The media had a successful smear campaign with its pink slime stories. High gas costs are already an issue.

This story has a chance at convincing Japan not to relax its stringent requirements. In the big picture, today’s news is overblown. Having said that, we are not suggesting a dramatic rebound will happen tomorrow. Today’s news, on top of a weak demand situation, could cause us to tread water at these lower prices. Cattle feeders are advised to hold those June hedges that were placed at 127.37. We would not attempt to pick a bottom tomorrow…Rich Nelson

About the Author
Rich Nelson

Rich Nelson is Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.

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