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Import bans could hurt U.S. beef industry

Though American consumers apparently haven’t lost their appetite for beef, dozens of countries continue to ban U.S. beef imports after the discovery of a single case of mad cow disease last week.  By John W. Schoen.
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Though American consumers apparently haven’t lost their appetite for beef, dozens of countries continue to ban U.S. beef imports after the discovery of a single case of mad cow disease last week.

While beef futures prices again fell their daily trading limits Monday, there were signs that prices were beginning to find a bottom. And, as the impact of the scare appeared to fade, investors were buying beef-related stocks that were sold heavily last week on worries about the impact of a possible mad cow outbreak.

American agricultural officials, meanwhile, continued to try to head off fears about the safety of the $27 billion U.S. beef industry. Some 10,000 pounds of beef have been recalled after meat from the infected cow and 19 others slaughtered on Dec. 9 was shipped to eight states and Guam.

At a press conference Monday, Agriculture Dept. officials said they believed that the diseased cow may have been imported into the U.S. from Canada before a 1997 U.S. ban on feed containing animal byproducts, one of the chief ways the disease is believed to be transmitted.

an outbreak of mad cow disease two years ago. Since then, all cattle bound for slaughter in Japan are tested for the disease known as bovine spongiform encephalopathy, or BSE.
The USDA spot checked just a small fraction of the 35.8 million cattle slaughtered in the U.S. last year, but plans to nearly double the amount of cattle tested in 2004 from about 20,000 tested this year. The Bush administration is under pressure from consumer groups and lawmakers who have criticized the U.S. system, which tests suspect animals but allows their meat to be sold before a diagnosis is complete.  

On Monday, USDA officials said they are looking at Beef prices fell again Monday in the futures markets, plunging 5 cents a pound – the limit placed on daily trading by exchange officials to slow panic selling. Cattle futures at the Chicago Mercantile Exchange are now down about 10 percent from the 90.675 cents per pound that traded for February delivery before USDA's mad cow announcement last Tuesday.

But there were signs that prices may be finding a bottom, according to Dan Vaught, a commodities analyst at A.G. Edwards in St Louis.  He predicts cattle futures will stabilize in the range of 72 to 74 cents a pound later this week. 

A widespread ban on exports could leave U.S. beef producers with excess supply, further depressing prices. The industry could also be hurt if fearful American consumers shun beef, but so far the reaction in the U.S. appears to be measured caution.  

Initial fears that American consumers would avoid beef have not yet materialized, according to the three largest fast food chains. Officials from McDonalds, Burger King and Wendy’s said beef sales had not been affected since last week.

Investors  last week dumped shares of beef producers and distributors, along with restaurants and other companies that would be hit if consumers shun beef. Hormel Foods, a major pork producer with limited beef production, was a favorite of investors looking to companies that might benefit from a slump in beef sales.

By Monday, however, many of those stocks had recovered most of their losses, including Outback Steak House and Jack in the Box.

Some analysts were recommended buying battered shares. J.P. Morgan on Monday upgraded its rating on McDonald’s stock, saying the stocks losses last week were overdone given the muted reaction so far by U.S. consumers.

And while cattle ranchers will clearly feel the impact of lower beef process, the timing of the U.S. mad cow scare could have been worse. For one thing, beef sales tend to slow during the winter months, said Vaught. And beef prices last fall hit record highs.

“Domestic demand of beef has been quite strong,” said Vaught. “It seemed to make an upward shift in 1999, when the Atkins diet really started attracting media attention and consumer interest.”