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US Beef Industry Hit Hard by Mad Cow Discovery - 2003-12-29

The U.S. beef industry is being hard hit by the discovery of a case of mad cow disease, which has prompted most nations to suspend imports of American beef. Beef prices at the Chicago Board of Trade fell for the third straight session.

Cattle futures prices fell by 5.8 percent, the maximum allowable daily decline. Prices for producers have fallen by nearly 20 percent since mad cow disease was detected last week in a single animal in the western state of Washington.

Prior to this selloff, cattle prices had surged during the previous nine months, gaining about 35 percent. Half of those gains have been erased.

Chuck Levitt, an analyst at Alaron Trading in Chicago, said the restrictions on U.S. exports are likely to lead to further price declines. "When you ban those products from going out the door to someplace else, from being exported, that beef will be consumed. And the only place that is going to happen is right here in America," he said.

Japan, South Korea and Mexico comprise 90 percent of the U.S. export market, and all three countries have suspended imports of American beef. In normal years, about 10 percent of U.S. beef production is exported.

Peter Morici, a business professor at the University of Maryland, said other beef exporting countries are likely to benefit from the problems in the United States. "In the short term, yes, Brazil could gain," he said. "But for the Japanese, the only way they are going to protect themselves from imported beef is not to import any beef."

Mr. Morici said mad cow disease, which devastated the British beef industry in the 1990s, appears to turn up randomly. He is hopeful that the situation in the United States will be contained just as it was in Canada less than a year ago.

Share prices of beef-purchasing companies, such as McDonald's restaurants, rose after registering significant declines last Friday.