P.O. Box 6486

Lincoln, NE 68506

www.competitivemarkets.com

Date: December 26, 2003

FOR IMMEDIATE RELEASE

Contact: Steve Cady, 402-792-0041

OCM: U.S. Could Preserve BSE-Free Status if Diseased Cow Was Imported -

Futures Trading Limits Should Be Narrowed

Lincoln, NE ~ The Organization for Competitive Markets (OCM) said today that America’s BSE-free status could be preserved despite the confirmation of the first case of bovine spongiform encephalopathy (BSE) in Washington if that dairy cow is found to have been imported from Canada. There appears to be a significant statistical likelihood that the subject cow was imported from Canada.

"The rules that govern whether a country maintains “BSE Free” status are found in the Terrestrial Animal Health Code of 2003 generated by the Office of International Epizootics (OIE),” said Michael Stumo, legal counsel for OCM. “The code says that a country can maintain its BSE-free status despite the discovery of a diseased animal if the animal was imported and all progeny (calves) of the diseased animal are disposed of.” (see http://www.oie.int/eng/normes/mcode/A_00068.htm).

The OIE is an intergovernmental organization based in Paris, France, which was created in 1924 and now has 165 member countries. The OIE rules on animal health are the closest thing to controlling authority on international health rules that exist in the world today.

“OCM has learned from industry sources that an estimated 80% to 90% of dairy cows bought in Washington in 2001, during a dairy expansion phase, came from Canada,” continued Stumo. “We are not saying that the cow was definitely from Canada. However, the statistical probability that a dairy cow purchased during October 2001 during a dairy herd expansion points in the direction of Canada. If so, the U.S. cattle sector would stand a strong chance to maintain BSE-free status so that exports could resume swiftly.”

To date Japan, Mexico, South Korea, Canada, Russia, Taiwan, Hong Kong, and China have banned imports of American beef and beef products as a result of USDA’s December 23 announcement that a dairy cow in Washington had tested positive for BSE. The Pacific Rim is a small but economically significant market for U.S. beef. Japan alone buys 32% of U.S. beef exports, a $1.03 billion dollar market.

OCM has been disappointed that the USDA has not made public note of this probability as the markets have been crashing in the cattle futures trading pit at the Chicago Mercantile Exchange (Merc).

“What we are witnessing is a knee-jerk, emotional response in markets that are extremely vulnerable to over-reaction to incomplete information and rumors,” said Fred Stokes, OCM president. “Futures markets have a significant effect on live cattle prices. If the USDA would be clearer on the Canadian-origin possibility while cautioning the market not to react until the information was in, a portion of the market losses could be stemmed.”

Unfortunately, the Merc doubled its trading limits today to $3.00 per hundredweight, up from $1.50 per hundredweight on Wednesday. Cattle futures traded limit down for the second consecutive day. Typically, there must be two days of limit down trading with the $1.50 window before the limit increases to $3.00.

“This ad hoc move by the Merc serves the packers and the large institutional traders, and works against the producers in a biased manner,” said Stokes. “If the diseased cow turns out to have been imported and the U.S. remains BSE-free, the harm will have been done. In any event, futures markets tend to overreact in these times where there is a shock to the system. A smaller trading window tends to reign in irrational market behavior while market actors evaluate consumer demand, cattle supplies, and shackle space availability.”

“The USDA should be aware of the potential that the diseased cow was, or was likely to have been, imported in October 2001. As a result, they should act to prevent market crashes that are based upon significant unknowns by releasing this important information,” continued Stokes.

The Organization for Competitive Markets is a nonprofit organization working for fair, open and competitive markets for farmers, ranchers and rural communities. OCM helps lead the Cattlemen’s Competitive Market Project which is a voluntary contribution program focusing on competition in the cattle markets.