Finding bird flu in dairy cows means 'turbulent times ahead' for livestock industry

By Myra P. Saefong

Detection of flu in milk samples a 'big story' for the dairy industry and cattle markets: analyst

News that the U.S. government detected the bird flu virus in milk samples from sick cows in a number of states caught the attention of traders in dairy and livestock markets this week, and may eventually present a dilemma for consumers.

"This is a big story for the dairy industry, and for the cattle markets," Arlan Suderman, chief commodities economist at StoneX Group, told MarketWatch.

On Tuesday, the U.S. Food and Drug Administration announced that the H5N1 bird flu virus was detected in unpasteurized milk samples collected for diagnosis of sick cattle on U.S. dairy farms.

Bird flu has been a key concern for the markets for chicken and eggs. Previous outbreaks of the flu had led to soaring egg prices in 2023.

Read: Bird flu is back - should you be worried? Here's what it means for grocery prices and for your health.

Milk safety

The FDA stressed that the commercial milk supply is safe because of the pasteurization process and the diversion or destruction of milk from sick cows.

In terms of any reaction on the part of consumers to the virus in milk samples, David Maloni, president of food service supply chain consulting firm Datum FS, said that "any consumption reaction will be measured in weeks or months and not longer, unless there is a larger issue."

'Any consumption reaction will be measured in weeks or months and not longer, unless there is a larger issue.'David Maloni, Datum FS

Prices in the futures market for milk have seen little reaction so far.

The most-active May futures contract for Class III milk (DAK24), which is used to make most types of cheese, fell 1.9% to settle at $17.78 per hundredweight on Wednesday, after losing 1.4% on Tuesday, according to Dow Jones Market Data. Class III milk has gained 11.4% so far this month, and traders 15.2% higher year to date.

While dairy cows from herds in eight different states have tested positive for the bird flu virus, it's not a health concern for consumers so the impact of the news on the milk market has been "minimal," said Suderman.

'Turbulent times' ahead for livestock

Even so, Darin Newsom, senior market analyst at Barchart, pointed out that while the government has said milk is safe for human consumption, there's likely to be a "loud counter argument" that says it is unsafe.

He believes it means there are "turbulent times ahead" for the livestock industry, in general.

Futures prices for live cattle fell by 0.5% on Tuesday and 1.1% Wednesday, though the June live cattle contract (LCM24) (LC00) rose 1.5% Thursday to settle at $1.778 per pound. Feeder cattle has seen mixed trading with August feeder cattle (FCQ24) (FC00) up 0.4% on Tuesday and down 0.8% on Wednesday, then up 0.8% Thursday to settle at $2.583 a pound.

News of the flu detected in dairy cows has made fund managers holding very large long positions in the beef cattle market "nervous," said Suderman. "The impact would likely have been much less if not for the big long positions held by managed money."

The U.S. Department of Agriculture had confirmed the detection in late March of the bird virus, which is also known as highly pathogenic avian influenza (HPAI), in dairy herds in Texas and Kansas. By early April, it had also confirmed detection of the virus in dairy herds in Idaho, Michigan, and New Mexico, and the Centers for Disease Control and Prevention announced a human, who had exposure to dairy cattle in Texas, tested positive for the H5N1 virus.

To be clear, the government has confirmed detection in dairy cows, those raised for milk, but there hasn't been any news on beef cattle - those raised for meat production.

Still, "traders holding big long positions get nervous when a story breaks that brings uncertainty," said Suderman.

Despite a lack of evidence to suggest human health concerns should a beef animal test positive, "that doesn't eliminate the risk that export customers, or even domestic buyers, may be afraid of it anyway," he said. "That fear was amplified this week when chatter hit the market that Colombia was rejecting beef from states where positive HPAI tests were found."

Colombia is a small buyer, Suderman said, "but traders feared that it might start a domino effect leading other customers to do the same."

The U.S. government, meanwhile, "amplified those fears when it restricted the movement of dairy cows from states testing positive for the HPAI virus," he said.

The U.S. Department of Agriculture on Wednesday said it was taking actions to help limit the spread of the disease, including the requirement that dairy cattle test negative for the Influenza A virus at an approved lab before they travel out of state. Labs and state veterinarians must also report positive tests in livestock to the government.

Read: As bird flu spreads in dairy cows, more surveillance is needed, health officials say

The restrictions set "a precedent that could be very damaging for movement necessary for the cattle industry to function, should we get a positive test in the beef industry," said Suderman.

-Myra P. Saefong

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04-27-24 0936ET

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