NEW YORK (CNN/Money) -
Meatpackers and some restaurant chains will suffer at least a short-term drop in business from the first report of mad cow disease in the United States, but the long-term impact should be minimal if the disease is contained, economists said Wednesday.
Some sectors of the economy, such as grain producers, could be insulated from a drop in domestic demand by strong sales overseas, the analysts said.
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The first case of mad cow disease in the United States has been discovered in Washington State. CNNfn's Chris Huntington takes a closer look at the impact on business.
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The recent rise in demand for U.S. grain crops, particularly corn, soybeans and wheat, following a European drought, should help sustain agricultural exports, said Diane Swonk, chief economist for Bank One Corp. in Chicago.
"Steakhouses all of a sudden don't look so good, but people don't stop eating," Swonk said. "The net effects are hard to see, but the bigger issue is how long" consumers might avoid beef, said Swonk. Midwest farmers, especially crop producers, and farm equipment manufacturers will be able to overcome any near term drops in beef demand, she added.
Economic damage will largely limited to beef exporters, said Matt Johnson, chief economist with Quantit Economic Group.
"In the grand scheme of things, the total economic impact is relatively small. This is not a high employment industry. Therefore, even if the concern persists, there are likely to be few knock-on effects," Johnson said.
Within hours of the announcement by the Agricultural Department that a Washington State cow had tested positive test for the brain-wasting disease, Japan, South Korea and Taiwan, which together buy about half of U.S. beef sold in other countries, halted all imports.
Mexico announced a ban on U.S. beef imports Wednesday.
The United States is the world's biggest beef exporter, with sales of about $3.5 billion expected this year, according to Philip Seng, president of the U.S. Meat Export Federation in Denver.
Japan, the leading overseas market for U.S. beef, imported 256.5 metric tons in the first 10 months of 2003, according to the federation. South Korea and Mexico followed.
First to feel investor pressure were stocks in meatpackers and restaurant chains, including McDonald's (MCD: Research, Estimates), the No. 1 hamburger chain, whose stock tumbled 5.4 percent, and Wendy's International, off 3.8 percent, in heavy trading.
Both companies said their supply chains were not linked to the case of mad cow disease found at a meat packer in Washington state.
If the Washington state case turns out to be an isolated one, Johnson said, the financial impacts to these companies should be minimal.
Keith Collins, chief economist at the Agriculture Department, told reporters Wednesday that it was too early in the agency's investigation to say what the lasting economic effects would be.
"We probably really are not going to get a test on what happens with cattle prices until we get into next week, and we start to see the normal resumption of cash market trading," Collins said.
In Chicago, cattle futures dropped the daily limit of 1-1/12 cents a pound in early trading Wednesday.
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