The first human case of New World screwworm in the U.S. has been confirmed in Maryland. The infected person traveled from Guatemala. This is the first time the parasite has appeared in the U.S. since it spread from Central America in 2023. Veterinarians and the cattle industry are worried about the screwworm’s effect on livestock. These parasitic flies lay eggs in wounds, where the larvae then burrow into the flesh. While fatalities are rare in humans, untreated infections can be fatal in animals.

Criticism of Government Response

The CDC and USDA are facing criticism for their slow communication after the Maryland case was confirmed. This comes after Texas announced plans for a sterile fly facility amid accusations of delays in addressing this pest. The news about the outbreak could affect beef and cattle markets, which are already high due to the smallest herd size in 70 years. A major outbreak in Texas could cost around $1.8 billion. Mexico is also responding by investing $51 million in a sterile fly facility, enhancing its efforts in Panama. Live cattle futures are trading near record highs of $210 per hundredweight. This case of screwworm presents a significant supply risk. With the U.S. cattle herd at its smallest since the early 1950s, the market is especially sensitive to new threats. Traders might consider buying out-of-the-money call options on cattle futures to take advantage of a potential price increase if more cases emerge.

Market Volatility and Historical Precedents

This new situation will likely cause increased market volatility. Implied volatility on cattle options, which has been around 20%, could rise above 30% soon. This offers an opportunity for those looking to sell premium, such as through cash-secured puts at strike prices they believe will remain stable. We also need to remember past animal disease outbreaks. When the first U.S. case of BSE, or “mad cow disease,” was confirmed in December 2003, cattle futures dropped sharply as major importers banned U.S. beef. A widespread screwworm outbreak could cause a similar demand shock, making protective put options essential to guard against a sudden price drop. This situation also opens doors in related markets. If beef prices are perceived to be at risk of soaring, consumers may choose pork or chicken instead. We are considering long positions in lean hog futures and stocks of major poultry producers. The key factor to monitor will be how quickly and effectively the government responds. Reports of new infestations, especially in major cattle states like Texas, would likely drive prices up. On the other hand, news of successful containment measures or the rapid use of sterile fly technology could quickly reduce the risk premium currently building in the market. Create your live VT Markets account and start trading now.

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