WASHINGTON, 25 December 2003 — The discovery of the first suspected US case of mad cow disease will mean a blow to the massive American beef industry and the overall economy, analysts say, but the degree remains uncertain.
The beef industry is a powerful force in the US economy, accounting for some $188 billion in economic activity and 1.4 million jobs, according to National Cattlemen’s Beef Association statistics.
Sales of cattle and calves alone represent some $40 billion, or one-fifth of all agricultural receipts. Exports accounted for some $2.5 billion in 2001, with Japan, South Korea and Mexico the top markets.
Most US exports are expected to be halted in the near future, though the impact on domestic consumption remains unclear. “Unquestionably, in the short term, there is going to be a huge economic impact,” said Jan Novakofski, professor of animal science at the University of Illinois Urbana-Champaign. “When the Canadians had one case, we slammed the border shut on their industry and cost them billions of dollars.”
Joel Naroff of Naroff Economic Advisers said there will be a short-term impact, but the long-term effect is unclear. “Clearly there are some counties that have banned imports, and those markets are going to be closed for an extended period, so the export markets will be hurt,” he said.
On the domestic front, Naroff said, “we don’t know to what extent or if it has entered the food chain. If it has, that would be a different impact than if it was isolated.” Additionally, the economist said that “how much people will change their eating habits is a big unknown ... we don’t know how people will react.”
Bank One chief economist Diane Swonk said there could be some economic losses from exports, but domestically the impact may be more of a shift away from beef to other products.
“It’s not as if people stop eating,” she said. “They may start eating more chicken. Steakhouses aren’t going to be as full, and that has been a rising trend ... it creates a lot of substitution effects and a whole new set of winners and losers.”
Overall, however, Swonk said the US farm economy has been having a good year with strong exports of grains and “this will help us absorb the shock.”
“But the big issue is how transitory it is. It had an impact for years in Europe, while in Canada it was more short-term,” Swonk added. “If it gets to be a larger scare, it does create a much larger problem.”
On Wall Street, losses were limited, as traders chose to wait for additional information, although fast-food chains such as McDonald’s and meat distributors saw their shares tumble. “We point out that the most recent (mad cow) scare in May of this year (in Canada) caused a knee-jerk reaction but no real long-term impact on either stock prices or overall consumption of beef,” said Harris Nesbitt restaurant analyst Matthew DiFrisco.
On the Chicago Mercantile Exchange, trading was halted after beef futures fell by the daily limit of 1.5 percent. The market temporarily stops buying and selling when prices move by a set margin in an effort to ensure orderly trade.
US livestock and grain futures tumbled as the world’s top importers slammed their doors on American beef after the first-ever case of mad cow disease in the United States. Discovery of the deadly brain-wasting disease in Washington state roiled the $27 billion cattle industry as top importers Japan, South Korea and several other nations banned US beef, which is expected to slash demand for feedgrains like corn.
Cattle futures at the Chicago Mercantile Exchange were hit the hardest. There was a surge in early sell orders, but the market came to a standstill when prices fell the daily trading limit of 1.5 cents a pound, and there were no buyers. Grain futures at the Chicago Board of Trade also fell sharply, with corn prices falling the most with double-digit losses, as widely expected by traders before the open.