April 27, 2012

 

Australia's cattle exports to Asia may boost over mad cow case

 

 

Following the discovery of a new case of mad cow disease in California, Australia's cattle industry is poised to fill any supply gap in Japan and South Korea if they ban US beef imports.

 

The US, Australia and Brazil are the three biggest suppliers to the global beef trade. Demand for Australian beef soared in 2003 when Japan banned US beef imports within hours of the discovery of mad-cow disease in meat from Washington State. The next year, total US beef exports fell 75%.

 

"Australian beef exports will benefit if Japan and South Korea impose restrictions on US beef," said Luke Mathews, an agricultural analyst at Commonwealth Bank of Australia.

 

"At this point we are not expecting any significant overhaul to import policies however we need to watch this space," he said.

 

Andrew Simpson, the Queensland-based director of cattle policy for farmer lobby AgForce, said Australia is "well-placed" to provide for any export shortfalls if the US situation escalates. Beef prices and demand went "crazy" after the export ban in 2003, Simpson said in an interview with Dow Jones Newswires. "It was a huge boon to anyone who was selling the commodity," he said.

 

Australian beef exports to Japan jumped 41% on year in 2004 following the US import ban, while Australian beef exports to South Korea jumped 50%. The average price of boneless frozen Australian beef to Japan jumped 20% to AUD3.78 (US$3.92) per kilogramme, free on board.

Japan only lifted its blanket ban on US imports in December 2005 while South Korea kept its ban in place until 2007.

 

Authorities in Japan and South Korea said Wednesday (Apr 25) they had no plans to change their import policies for US beef. Still, two major South Korean retailers pulled American beef from their shelves after the discovery of a diseased cow carcass at a rendering plant in California, although one later resumed trade. It is the first case of the brain-wasting illness in the US since 2006.

 

AgForce's Simpson said the market response to the latest mad-cow case had been "mature", with trade returning to normal once US authorities declared that meat from the diseased cow didn't enter the food chain. Still, he warned the news is negative for beef markets overall given consumers tend to shy away from eating meat in response to any new disease cases.

 

Australia's cattle markets were closed Wednesday for a national holiday. US cattle futures rebounded from panicked selling a day earlier after the USDA said no meat from the California dairy cow had entered the US food supply. But the mad-cow discovery did weigh heavily elsewhere in US markets Wednesday, such as on feed grain prices.

 

"There are expectations that importers will turn their back on US beef, creating shock waves through the entire supply chain," Commonwealth Bank's Mathews said.

 

Meat & Livestock Australia Ltd., which provides marketing and research advice to Australian livestock producers, said it is "closely monitoring" the situation.

 

"The reaction is likely to be much more measured than what it was in 2003", said Tim McRae, the firm's manager for market information. Trade pacts such as one signed between the US and South Korea since the last mad-cow outbreak have limited any knee-jerk response, he said.

 

The human form of mad-cow disease, also called bovine spongiform encephalopathy, has been linked to more than 100 deaths, mostly in the UK and Europe. Australia has so far avoided any outbreaks of mad-cow disease, which is most commonly spread in herds through contaminated feed. Australian cattle mostly graze on pasture, including on vast unfenced cattle stations where cattle rarely see a human being outside of infrequent musters. About one third of Australia's cattle spend time in feedlots before slaughter where they eat a highly nutritious grain diet, in part to achieve the high levels of marbling prized in some markets, especially Japan.

 

Scientists said the latest case of mad-cow disease in the US is "atypical" because the cow incurred the disease spontaneously, not from eating feed that contains the remains of infected cattle. The practice of using cow by-products in cattle feed is now banned in the US.