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News during the last week of the year, that USDA had discovered a case of bovine spongiform encephalopathy or BSE, a brain-wasting disease in a dairy cow in Washington state, sent agricultural markets into a tailspin.
Commonly referred to as mad cow disease, BSE attacks the nervous system and brain of the animal and can be transmitted to humans if they consume these bovine body parts.
US markets responded as the news spread. Beef futures fell the daily limit for several days. Immediately after the BSE announcement, soy futures fell in anticipation of lower domestic utilization, but then climbed later in the same day.
What does this all mean for dairy? Take your finger off the panic button and consider the following:
- Milk and dairy products are absolutely safe. The disease is not transmissible via milk and dairy products.
- Virtually all beef is safe to consume.
- Dozens of countries have stopped accepting beef shipments from the United States.
- Domestic beef consumption will likely soften, at least short term. Some consumers will switch to pork, poultry, dairy products (especially cheese), fish and plant sources for their protein.
- Beef prices took an immediate tumble, but from record high levels established last fall. Prices have since staged a modest recovery.
- Once the dust settles, lower beef prices will probably prompt fast food operators to increase promotions for meal items such as cheeseburgers.
- Lower cow prices may slow the number of cull cows moving to market, but not appreciably. By historic standards, prices are still fairly good. Beef prices just established new record highs in October.
- It is income tax time and some producers and or their bankers will decide it is time to exit the milk production business regardless of cull cow prices.
- Initially, soybean prices fell as traders assumed less demand for beef production. Prices then rebounded once reason prevailed and traders realized more soy protein will be needed to replace beef protein used in some animal feeds. Soybean prices, which were very high, are now well above the pre-BSE announcement levels.
- Some feed manufacturers and mills will stop handling animal-based protein supplements (which may still be used in hog and poultry feeds) for fear of cross-contamination of cattle feeds also being processed.
- Reduced usage of animal-based proteins is bullish news for soybean meal and other plant-based proteins. This also means higher feed prices for milk producers.
- On the day of the BSE announcement, dairy futures plunged on the news, but settled above the lows established earlier in the day.
Bottomline: The BSE event is bullish news for milk prices