November 22, 2004

 

 

Inconclusive Tests Create Uncertainty In US Beef Sector

 

A general state of uncertainty has been evident in the U.S. cattle and beef markets since the U.S. Department of Agriculture reported early Thursday "inconclusive" test results for bovine spongiform encephalopathy, or mad-cow disease.

 

The USDA's announcement resulted in sharply lower live cattle futures prices at the Chicago Mercantile Exchange Thursday but prices rebounded modestly Friday, closing 10 to 37 cents per pound higher.

 

Industry sources said most participants in the cash cattle markets took a wait-and-see approach to the government's announcement. USDA said it would take four to seven days for its National Veterinary Services Laboratory, located in Ames, Iowa, to perform final tests on tissues of the suspect animal.

 

USDA wouldn't give any details about the age, sex or breed of the animal, nor its state of origin.

 

Two previous inconclusive test results, which were each from single rapid tests, June 25 and June 29, were later determined to be negative from the NVSL's final tests.

 

USDA said Thursday it has tested about 113,000 head of high-risk cattle in its program aimed at identifying the prevalence of BSE in the U.S.

 

The latest inconclusive test results came after the USDA changed its policy on reporting of such cases to only those that have been deemed inconclusive in the initial screening and the automatic duplicate rapid test. In those cases, tissue samples are then sent to the NVSL in Ames for final testing using the immunohistochemistry method, which is considered the gold standard test for BSE.

 

Market analysts Steve Meyer and Len Steiner, who co-author the Chicago Mercantile Exchange's Daily Livestock Report, said in Thursday's report that "while this is still an inconclusive test, the chances that USDA may have come across a second case of BSE in the U.S. are higher than during the first two. The reason, as pointed out many times during the course of the day, is because the most recent inconclusive test had to undergo a more thorough process before being reported."

 

Meyer and Steiner said this doesn't mean that the U.S. has a second case of BSE, "only that the chances are higher than back in July." They added that if the gold standard test does come back with a positive result for BSE, then "the main potential impact would be on beef demand, both domestic and to the potential export market. As for exports, it is hard to see how this event could further impact U.S. beef exports."

 

Meyer and Steiner said Japan has agreed that it will allow exports of beef 20 months or younger, presuming USDA can show its Beef Export Verification process can verify an animal's age. It's unlikely that should the U.S. find an infected animal, it will be younger than 20 months because that hasn't happened yet anywhere in the world.

 

As for Canada and Mexico, they already have processes in place that allow U.S. beef from cattle 30 months or younger. It's also unlikely that, should the U.S. find an infected animal, it will be younger than 30 months.

 

It's possible that a second case of BSE could further delay the importation of live cattle from Canada and, in a way, be bullish for the U.S. cattle market, they said.

 

As for domestic beef demand, the analysts said it's hard to see that the discovery of a second BSE-infected animal will have more of an impact that the discovery of the first case. Last year, the impact of the BSE discovery in Washington state on U.S. consumer demand appeared negligible.

 

The analysts concluded that "if the BSE tests come back negative, then the futures market may move higher as more immediate fundamental concerns come to the forefront, specifically cold weather in the Texas panhandle and other areas of the country. But, in the medium term, it could be relatively bearish for cattle given that there would likely be no additional hurdles for the USDA to allow resumption of live cattle trade with Canada."

 

THIS WEEK'S ESTIMATED SLAUGHTERS, COMBINED MEAT PRODUCTION

 

This week's cattle slaughter was estimated at 607,000 head, compared with 605,000 a week ago and 606,000 a year ago. Year-to-date cattle slaughter is estimated at 28.834 million head, down 9.0% from a year ago.

 

Hog slaughter this week was estimated at 2.114 million head, compared with 2.004 million a week ago and 2.162 million a year ago. Hog slaughter for the year to date is estimated at 90.373 million, up 2.2% from a year ago.

 

This week's combined meat production - for beef and veal, pork and lamb/mutton - was estimated at 895.0 million pounds, versus 872.3 million last week and 887.3 million a year ago. Combined meat output for the year is down 3.5% from a year ago.

 

Broiler slaughter this week was estimated at 156.312 million head, compared with 161.965 million a week ago and 151.254 million a year ago.