CHICAGO U.S. live cattle futures tumbled more than 2 percent on Tuesday for their biggest drop in seven months, hit by rumors of a new, domestic case of mad cow disease that later received government confirmation.
Funds liquidated their long positions amid fears that importers of U.S. beef will shut their doors just like they did in 2003, when the United States discovered its first case of bovine spongiform encephalopathy.
The U.S. Department of Agriculture said the fourth U.S. case of mad cow disease had been found in a dairy cow in central California.
The rumors battered a market still trying to find its feet after the uproar over finely textured beef, dubbed by critics as "pink slime", that dented demand for the meat.
Live cattle futures on the Chicago Mercantile Exchange fell by as much as the daily 3-cent-per-lb limit, equating to losses of more than 2.5 percent, as the rumors spread.
Prices recovered only slightly after the USDA said meat from the infected animal had not entered the food supply and that exports should not be affected. Traders remained cautious amid the latest negative publicity to hit the cattle market.
"Anything that comes around is going to be viewed as negative to the market one way or the other. But, it seems to be more leaning toward the negative side," said John Nalivka, president of Sterling Marketing Inc.
Investors have seen futures and cash cattle prices surge to new highs as recently as early March, prompting some to wonder whether the market was due a correction.
"You had a limited upside, but there were a whole lot of reasons the market should have a downside to it," Nalivka said, referring to sluggish beef demand in part because of the "pink slime" controversy.
April through December live cattle futures settled limit-down, with actively traded June at a contract low of 111.575 cents per lb. June futures were 2.475 cents lower at 112.100 cents in electronic trading on Globex at 4:43 p.m. EDT.
Uncertainty about whether the new BSE finding would impact beef exports, which hit record highs last year, kept buying interest muted.
The first U.S. case of BSE was discovered in December 2003, after which key purchasers, including top buyer Japan, banned U.S. beef imports. Beef exports plunged nearly 75 percent, with the USDA reporting net cancellations of beef sales in five of the first six weeks following the news.
Markets eventually reopened after months of negotiations, but with tight restrictions on the age of cattle.
Japan was believed to be poised to relax its age restriction, which currently limits imports to beef from cattle up to 20 months old, as soon as this summer. Other countries restrict imports to beef from cattle up to 30 months old.
"My feeling is there won't be a big reaction and if they do they'll go with an age restriction like the Japanese do," said Dennis Smith, an analyst with Archer Financial.
JBS USA, a unit of the world's biggest beef producer, JBS, said the company was confident that U.S. beef exports would not be affected and that the discovery would not set back Japan's intention to relax rules on imports.
(Additional reporting by Theopolis Waters, Michael Hirtzer, and K.T. Arasu; Editing by Bob Burgdorfer and Dale Hudson)