UPDATE 1-Leaked email leads traders to fear worst from USDA furloughs

Wed Mar 6, 2013 8:23pm EST

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By Charles Abbott

WASHINGTON, March 6 (Reuters) - A leaked Agriculture Department email briefly rattled the U.S. livestock market on Wednesday as traders interpreted it as meaning the department might implement mandatory budget cuts in ways that deliberately worsen disruptions at meat-packing plants.

Agriculture Secretary Tom Vilsack has said USDA will cushion the impact on the meat industry and consumers as much as possible. Still, there could be brief plant-by-plant shutdowns and scattered meat shortages, although months in the future.

The memo, from an official at USDA's animal and plant health agency and confirmed as authentic by the agency, was circulated by some Republican lawmakers and viewed by traders as evidence that the Obama administration wants the so-called budget sequester to be as disruptive as possible.

The leaked email, dated Monday, makes reference to a USDA regional wildlife services manager being told that in making sequester cuts "make sure you are not contradicting what we said the impact would be." While critics said the phrase showed an intent to be inflexible, USDA said the email actually was an approval of a request to curtail certain wildlife services in an additional 16 states as a way to avoid furloughs.

USDA shared with Reuters a preceding email in which the request to avoid furloughs was made. It says the agency proposed the wider reduction in service in budget documents sent to Congress months ago.

USDA funding for the 2013 fiscal year that ends Sept. 30 was cut by $1.9 billion, or about 5 percent, by the reductions that took effect on March 1.

Officially, USDA says it is working to minimize the impact of cuts. "If we can find a way to do something to reduce the impact of the sequester, we will do it," USDA spokeswoman Courtney Rowe told Reuters.

Uncertainty over potential meat inspector furloughs is said to have contributed to weak U.S. cattle and hog markets this week, although other factors, including selling by large investment funds and weak demand for pork, have also weighed on sentiment.

By law, meat plants cannot operate without USDA inspection. Packers would buy fewer animals and produce less hamburger, pork and chicken during a furlough. USDA says inspectors would be furloughed for a total of 11 or 12 days each but the days off would be non-consecutive and it would try to minimize the impact on packers and processors.

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