031263 Stocks Linked to Beef Continue to Fall

New York Times - The discovery of mad cow disease in the United States continued to roil the cattle markets and the beef industry yesterday as the prices of live cattle and stock in meat processors were pummeled for a second day.

On the Chicago Mercantile Exchange, live cattle futures for delivery in February fell 3 cents, to 86.175 cents a pound, even after the normal limit of 1.5 cents a pound was doubled for the day because of the crisis.

Stock in Tyson Foods Inc., the largest meat processor in the nation, fell 31 cents, to $12.59 a share, after falling $1.08, or 8%, on Wednesday. Smithfield Foods Inc. and the Hormel Foods Corporation each fell by about 1%.

Standard & Poor's, the credit rating agency, said it might cut the debt ratings of companies that process beef and of restaurants that feature beef because of the uncertainty about how consumers will react.

Some restaurant chains, notably the McDonald's Corporation and Wendy's International, posted modest gains, reversing setbacks on Wednesday when the initial reaction to the mad cow scare swept the markets.

But the price of live cattle remained under pressure as countries around the world banned imports of cattle from the United States. Analysts said the United States had been on pace to export more than $3.5 billion worth of beef this year, 10% of the nation's production.

Faced with the uncertainty and the exchange's limit on daily changes in price, traders in the futures market were unable to determine the price, which fell the 3-cent limit as soon as trading began, essentially putting a halt to trade, because there were no buyers.

The exchange raised the limit to 3 cents for yesterday's session because the price fell the normal 1.5 cent limit on Wednesday and will expand the limit again, to 5 cents a pound, for Monday's session.

Gregg Doud, chief economist with the National Cattlemen's Beef Association in Denver, said prices in the market for options on cattle futures, where prices have fewer restrictions, indicated that the price might level off at about 75 cents a pound.

Mr. Doud said one trade was reported on the cash market in Kansas on Friday, with live cattle selling for 78 cents a pound, down from an average of 92.62 cents a pound before the mad cow news emerged.

"I am hard-pressed to think of the last time this market has done anything like this," Mr. Doud said. "And it's because we've lost our export market. We've lost at least 90% of a $3.5 billion export market this week."

Chuck Levitt, senior livestock analyst for the Alaron Trading Corporation in Chicago, noted that the Canadian beef industry was still reeling from the discovery of an infected cow in April.

"We are seeing an agricultural tragedy unfold as we speak," Mr. Levitt said. "How much equity will be lost by the American beef producer, I can't tell you. But chances are it won't be millions, it will be billions of dollars."

Keith Collins, chief economist with the Department of Agriculture, said the price might return to levels of a year ago, or about 72 cents a pound, which would be tolerable considering that the past year has been a good one.

"So the price declines the producers are likely going to face, while in fact will cause them some financial difficulty, will probably bring prices back to a level that they've been in the past year or so," Mr. Collins said.

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