Will H1N1 flu affect cattle and beef prices?
May 13, 2009
Will the H1N1 (swine flu) influenza virus affect cattle and beef prices? The short answer to that question is yes. However, the total magnitude of the impact is difficult to forecast at this time.
The swine industry already has been affected dramatically. The May lean hog futures contract closed at $69 per hundredweight (cwt) on Friday, April 24, and one week later on Friday, May 1, the market declined to $58.47, a decline of $10.53. The cash hog market also declined throughout the week.
In addition, the hog market has been increasing seasonally and was expected to continue that trend, so the total price impact on the hog industry likely was more than the cash market decline indicated.
The H1N1 flu virus originally was called swine flu because it had characteristics of previously identified strains of swine influenza. However, it was soon determined that the virus also had similarities to avian and human influenza strains. Since there were no cases found in hogs and the virus seemed to be spreading only in humans, several world and U.S. organizations announced that the flu should be called Influenza A, H1N1, instead of the swine flu. Later, a reported case of human-to-swine transmission was reported in Alberta, Canada.
Unfortunately, significant monetary damage already had occurred to the U.S., Canadian and Mexican swine industries. The entire international meat market will be affected.
The U.S. is the leading exporter of pork in the world and a leading exporter of beef and poultry products. Several countries immediately banned pork imports from the U.S. Russia, an important market for U.S. beef, pork and chicken, banned imports of those products from states where the flu has been detected.
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Reduced exports of pork will increase domestic supplies and pressure prices. Lower than expected pork prices likely will adversely affect beef demand. However, the extent is not known because it depends on how consumers in the U.S. and worldwide react and how long the problem stays in the limelight.
The June live cattle futures contract closed at $82.60 cwt on April 24. One week later, on May 1, the contract closed at $82.10, a decline of only 50 cents per cwt. Therefore, cattle futures did not seem to be affected nearly as much as hog futures prices. However, we do not know if cattle futures would have increased but instead stagnated because of the hype surrounding the flu virus.
Cash fed-cattle prices did decline about $2 per cwt after increasing for several weeks.
Mexico has been impacted the most by the flu. Many businesses, including hotels and restaurants, are closed and travel is restricted. Mexico’s already weak economy may weaken further, so meat consumption will be affected.
Mexico has not banned meat from the U.S. However, expectations are that meat exports will decline in the next several weeks and possibly longer. In 2008, Mexico was the leading destination for U.S. beef exports and the second leading destination for pork and poultry meats. Therefore, Mexico is a very important market for the U.S. meat complex.
The impact of H1N1 on cattle and beef prices probably will be less than occurred when demand for beef was severely affected by events earlier this decade such as 9/11 and the discovery of bovine spongiform encephalopathy in the U.S. Let’s hope that it is a short-lived event and the impacts are temporary.
The negative impacts surrounding the unfortunate misnaming of the influenza virus should be another reminder to the livestock industry that prices can decline very quickly for reasons out of our control. Livestock producers need to consider having price-risk management strategies in place for this very reason.
For example, Livestock Risk Protection insurance was developed to protect livestock producers from price declines due to unforeseen and catastrophic events. It is available for feeder and fed cattle, swine and lambs.