031264 Cattle Futures Fall Over Mad Cow

Cattle futures plunged the maximum allowed by the Chicago Mercantile Exchange after Japan banned U.S. beef imports and a U.K. laboratory confirmed a cow from Washington state tested positive for mad cow disease.

Japan, South Korea and Mexico, the biggest export markets for U.S. beef, have suspended imports since the U.S. announced the discovery of the sickened animal Tuesday. A second farm in Washington was quarantined as part of a probe to find the source of the disease, the U.S. Department of Agriculture said.

"We've got Asian countries shutting us off, and the lack of exports are going to kill us," said Brian Hoops, senior market analyst at Midwest Market Solutions in Yankton, S.D. "We're going to drop down pretty hard."

Cattle for February delivery fell 3 cents, or 3.4%, to 86.175 cents a pound. The contract also fell on the exchange limit Wednesday, before the market was closed Thursday for the Christmas holiday.

The daily price-change limit was increased to 3 cents from 1.5 cents, and will rise to 5 cents on Monday, the exchange said. Such limits are imposed to allow for traders to buy or sell in an "orderly fashion" in response to new information, exchange spokeswoman Ellen Resnick said.

Before the U.S. case was discovered, futures had gained 25% since the U.S. banned Canadian cattle on May 20, after a case of mad cow disease, known as bovine spongiform encephalopathy, was confirmed in Alberta. The price of feeder cattle also fell the 3-cent limit to 90.725 cents.

Investigators have yet to determine whether the infected dairy cow was born in the U.S. or Canada, Ron DeHaven, the USDA's chief veterinarian, said on a conference call with journalists.

A second herd of cattle was quarantined in Sunnyside, Wash., because the infected dairy cow's calf had been sent there, DeHaven said. The farm where the infected cow was found, Sunny Dene Ranch, which has

4,000 animals, was quarantined earlier this week.

The U.S. was set to have a record year of beef exports at $3.6 billion, up from $3.2 billion in 2002, according to Gregg Doud, chief economist for the National Cattlemen's Beef Association. The U.S. Department of Agriculture estimated total beef and veal exports for last year at just under 2.5 billion pounds, or about 9% of total U.S. production.

Japan made up 32% of the U.S. beef exports in 2002, Keith Collins, USDA's chief economist, said on the conference call. The department is sending a trade delegation to Japan, which imposed a ban on U.S. beef imports Friday. The loss of Japan's beef market is "significant," Collins said.

Shares of Tyson Foods Inc., the world's largest meat processor, fell 31 cents, or 2.4%, to $12.59 in New York Stock Exchange composite trading. Hormel Foods Corp., maker of Dinty Moore stew, fell 31 cents, or 1.2%, to $26.15. Pilgrim's Pride Corp., the second-largest U.S. poultry producer, rose $1.28, or 7.6%, to $18.13.

As part of an effort to prevent another mad cow case in the U.S., cattle ranches will be subject to more federal inspections, DeHaven said on the call. The number of tests during the next fiscal year will rise to about 38,000 from about

20,600 in the current fiscal year, he said.

Soybean prices rose 4.6% after gaining 2.4% Wednesday.

on speculation that poultry and hog producers will use more of the oilseed as feed because of the mad cow case. Corn prices rose 1.7%.

About 70% of the corn crop and a third of U.S. soybean supplies are used in animal feed. Poultry and hog farmers also use feed that contains parts of cattle carcasses, which are banned in feed intended for cattle.

"The thinking in the beans is that the government will ban the use of feeding bone meal and carcass remnants to our chicken and hog population, requiring soy meal to be its replacement," said Tim Hannagan, a grain trader at Alaron Trading in Chicago. "With meal stocks already historically low, this would require much more beans to be crushed to get the meal."

Soybeans for March delivery rose 35 cents to $8 a bushel on the Chicago Board of Trade. Corn for March delivery rose 4 cents to $2.3975 a bushel. China also apparently issued permits to import 5 million to 6 million tons of corn in the current marketing year, Hoops of Midwest Market Solutions said.

Prices for soybean futures had risen by more than a third this year because of strong export demand and after a drought damaged crops in the Midwest. The futures reached a six-year high of $8.085 on Nov. 3.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com