Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Cattle prices have fallen as the U.S. government steps up measures to contain the spread of an avian flu outbreak among the country’s cow herds.
The U.S. Department of Agriculture earlier this week banned infected cattle from crossing state lines and said it would test ground beef for bird flu particles, while the United Nations World Health Organization expressed concern about the possibility of the virus spreading outside the United States.
Highly pathogenic avian influenza (HPAI) has been found in dairy herds in nine states, including Texas, where a dairy worker also tested positive for the virus. Virus fragments have also been found in the country’s milk supply.
The USDA confirmed Wednesday that the ground beef samples had tested negative for the virus, but retailers have still responded to the outbreak.
Live cattle futures traded on the Chicago Mercantile Exchange fell more than 6 percent on Wednesday, from above $1.85 a pound to below $1.74 a pound.
The USDA said it was confident that both the country’s meat and dairy supplies were safe, but traders’ fears that the risk of contamination could hurt demand still caused prices to fall, analysts said.
“Perception is obviously reality in the eyes of consumers when it comes to food,” said Arlan Suderman, chief commodities economist at broker StoneX. “If they perceive a problem, whether there is a problem or not, then there is a problem.”
He added that the announcements surrounding the outbreak “had a major impact on the psychology of the futures market.”
Livestock futures had risen to record highs in recent months as drought in the western and southern U.S. forced ranchers to reduce the nation’s herd to its smallest level since 1951, leaving supplies tight.
With prices rising, speculators flocked to the futures market, betting on further profits, Suderman said. But the USDA’s announcements this week have caused many of those traders to exit their long positions, he added.
“All of a sudden you introduce this uncertainty, and that creates fear, and managed money says, ‘Why should we continue to risk our money to maintain ownership of this asset when we don’t know what the next headline is going to be?'” ” said Suderman.
Colombia last week banned imports of beef products from certain U.S. states in response to detection of the virus in dairy cows.
The South American country is only a small importer of U.S. beef, Suderman said, but the market reacted when the news broke because traders thought, “Even if it’s just a small customer, that’s just the first shoe in the sand.” is dropped? Will there be one more?”