CHICAGO (Reuters) - U.S. live cattle futures on Wednesday recovered most of the previous session's tumble, lifted by short-covering and higher cash beef prices as traders attempted to put Tuesday's mad cow scare behind them.
Traders said assurances by Japan, Mexico and Canada that imports of U.S. beef would not be affected by the first case in six years of Bovine Spongiform Encephalopathy (BSE), popularly called mad cow, would support the market.
On Tuesday futures tumbled the daily 3-cent trading limit after news of the discovery of the disease in the carcass of a California dairy cow caused investors to bail out of a market already battered by demand fears after the consumer uproar over a filler beef known by critics as "pink slime."
Those who were caught the wrong way after short selling the market covered their positions after wholesale beef prices, or the cutout, on Wednesday morning rose above $190 per cwt, a level which suggest retailers are stocking up on beef for grilling season specials.
"You've got some people saying yesterday's action was overblown. The cutout was strong and futures are at a steep discount to cash which are the other supportive factors," said Jim Clarkson with A&A Trading.
At 12:21 p.m. CDT (1721 GMT) benchmark June live cattle futures were up 1.350 cents at 112.925 cents per lb.
In recent weeks traders have worried that the uproar over what critics dubbed "pink slime," and the industry labeled "finely textured beef," would sink wholesale choice beef prices below the $170 mark.
Still, prices hovered around their lowest in nine months.
South Korea said it would continue to allow U.S. beef imports, but two major retailers in the country halted sales of American beef after the mad cow in California was confirmed.
"After the mad cow fallout, the market became extremely oversold. And as assurances come in from USDA that this is an isolated incident and the meat did not enter the food chain, traders will start to forget about it," said Joe Ocrant, president of Oak Investment Group Ocrant.
Futures have tumbled from a high above 131.000 cents in late February following an uproar over pink slime, which was treated with ammonia and used in ground beef for hamburgers. That dampened demand for such beef.
The first U.S. case of BSE was discovered in December 2003. After that, big importers such as top-buyer Japan banned American beef imports. U.S. beef exports plunged nearly 75 percent, with the USDA reporting net cancellations of beef sales in five of the first six weeks after that first case broke.
The countries eventually reopened to American beef after months of negotiations, but with tight restrictions on the age of the cattle.
Japan was considering relaxing its age restriction, which currently limits imports to beef from cattle no older than 20 months, as soon as this summer. Other countries restrict imports to beef from cattle up to 30 months old.
JBS USA, a unit of the world's biggest beef producer, JBS SA, said the company was confident that U.S. beef exports would not be affected, and that the discovery would not set back Japan's intention to relax rules on imports.
Dennis Smith, an analyst with Archer Financial, said, "We've gotten the response from overseas which is what people had hoped for. They're not going to alter anything. Everything is okay."
Editing by Alden Bentley