AgDM newsletter article, April 2001

Foot–and-mouth-disease update and implications

John Lawrenceby John D. Lawrence  The foot-and-mouth disease (FMD) outbreak that swept the United Kingdom appears to be subsiding. By late April the number of new cases reported had dropped to 3 on April 26 compared with more than 40 per day at its peak in early April. As of April 26, there had been 1482 confirmed cases of FMD in the UK and 2,287,000 animals had been slaughtered or were identified for slaughter.

There is little doubt that FMD is a crisis and the individual farms and communities impacted will suffer a significant loss. At the same time, the number of animals destroyed is less than many perceive based on the news coverage (Table 1). Farms whose herds were destroyed will be compensated, but the market place and livestock economy were greatly disrupted.

Table 1. FMD related disposal and January 1, 2001 inventory for United Kingdom
 
Disposed
Inventory 1/1/01
Percent
Sheep and goats
1,647,000
30,800,000
5.3
Cattle
384,000
11,268,000
3.4
Pigs
106,000
6.950,000
1.5

France, the Netherlands, and other European countries have had confirmed cases, but appear to have contained the spread. Japan, initially blocked imports from the EU because of FMD, lifted the ban on selected countries, particularly Denmark, The U.S. hog futures market dropped sharply on the news, because Denmark is a major pork export competitor.

What if FMD hits the U.S.?

The U.S. has been FMD free since 1929 in spite of outbreaks in Mexico and Canada in the 1950s. Certainly flare-ups in the UK, Argentina, and now Uruguay have put the U.S. on alert. Federal and several state governments have developed emergency action plans in case FMD does hit in the U.S. The exact action plans are complex and will differ with possible scenarios, but we can speculate on what the market and institutional reaction might be to a FMD outbreak.

If FMD is confirmed anywhere in the U.S., beef and pork exports would stop overnight as trading partners would move to protect their industries. The U.S. exports approximately 7-8 percent of its pork and 11-12 percent of its beef. This supply would have to be absorbed into the domestic market at a time when U.S. consumers will be watching news coverage of burning or burying piles of animals destroyed to stop the spread of the disease. Even though FMD is not harmful to humans, consumers would likely reduce meat consumption and prices would fall.

Domestic cattle and hog prices are expected to decline 20-40 percent, with the largest drop occurring the most quickly. Countries that import beef would likely reduce imports because of the lower prices and Canada and Mexico would reduce imports of live animals. While some might argue that the reduced imports would offset the increased supply, keep in mind that we import primarily low-value grinding meat and export high-value middle meats. Likewise, hide exports might also be curtailed, and we export approximately 60 percent of U.S. cattle hides.

When a degree of containment can be determined after a few days or weeks, it may be possible for FMD-free regions of the U.S. to re-establish exports with some countries if the status of that region can be confirmed and protected.

Movement of animals within the U.S. will be restricted and stopped completely in an infected region. If FMD is confirmed in one region, other states may close their borders to prevent the movement of animals into their state. This initial action may be only for a few days until the extent of the FMD spread is determined. States may partially close their borders, i.e., prevent livestock coming from the direction of the outbreak, but not for livestock coming from the other direction. Trucks hauling livestock may be detoured around some states or regions. Travel of any kind in an affected region may be restricted also.

These restrictions could make it difficult to move feeder or slaughter animals into Iowa. Packers may choose to (or be asked to) close plants for a few days so as not to move more animals than needed. Packers may have to bid aggressively in unaffected regions for livestock that can move to plants. Once marketings resume, livestock will be heavier, adding to the supply. Feedlots and finishing houses may not be able to get replacements as quickly as planned, and may not want them if the market is uncertain.

While there would be a surplus of both pork and beef on the market, and some consumers might avoid meat, there could be spot shortages in the short run as plants temporarily close and are unable to service restaurants and grocers in some regions.

If the outbreak occurs in a sparse livestock region, it may be contained relatively quickly, and the domestic market disruptions could be over in a few days. Exports could resume, at least on a limited basis, in a few weeks. However, the impacts of an outbreak in a major livestock region such as the High Plains, Corn Belt, or North Carolina could be extremely large and very long. Losses to producers would be staggering and the cost to tax payers for containment and restitution to producers with infected herds would be overwhelming.

Some believe that enough animals will be destroyed to reduce the supply and actually improve prices. Look again at Table 1. Relatively few animals will actually be destroyed, but exports will end and domestic consumers will be hesitant buyers. There could be an aftershock if prices are low and long enough that additional producers liquidate their herds for economic reasons. If consumers, export and domestic, regain their appetite during a meat shortage, prices could rebound months if not 2-3 years later.

Management Strategies

What can producers do to protect their operation?  First, practice sound biosecurity. Make sure you know that visitors to your farm have not been in the UK or other infected regions recently. Protect against a price decline by buying a put option for your production. The put protects the producer from falling prices, but allow for higher prices if they occur. Bottom line is to pray that FMD doesn’t reach North America.

 

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