Cattle futures rose the most in six months on concern that U.S. beef supplies will shrink as Tyson Foods Inc. (TSN) halts purchases of animals fed with a supplement made by Merck & Co. (MRK) after discovering lame livestock at factories.
“Some animal-health experts have suggested that the use of the feed supplement Zilmax, also known as zilpaterol, is one possible cause” for the animals being unable to walk, according to a letter sent by Springdale, Arkansas-based Tyson to cattle suppliers. The “interim measure” is effective Sept. 6, and the “evaluation of these problems is ongoing,” according to the letter provided yesterday by Tyson spokesman Gary Mickelson. Merck said the supplement is safe.
Futures climbed to a five-month high. Zilmax helps animals gain 24 pounds (11 kilograms) to 33 pounds more than normal and is used to increase lean muscle, according to Steve Kay, the editor of Cattle Buyers Weekly, a trade magazine based in Petaluma, California. The supplement is typically given for about 20 days in the month before livestock are sent to slaughter, he said.
“This is not a food-safety issue,” according to the letter by Tyson, the biggest U.S. meat processor. “It is about animal well-being and ensuring the proper treatment of the livestock we depend on to operate.”
Pamela Eisele, a spokeswoman at Whitehouse Station, New Jersey-based Merck, said in an e-mail that “extensive” data and research showed that the “behavior and movement of cattle fed Zilmax is normal.” The company “has offered technical assistance, both internal and external experts, to help Tyson to understand what is behind the instances at its facility,” according to the e-mail.
Cattle futures for October delivery rose 1.9 percent to settle at $1.27075 a pound at 1 p.m. on the Chicago Mercantile Exchange, the biggest gain for a most-active contract since Jan. 28. Earlier, the price climbed by the CME limit of 3 cents to $1.27675, the highest since March 13.
Trading was 89 percent more than the 100-day average for this time, according to data compiled by Bloomberg. Cattle futures have dropped 3.9 percent this year.
The price pared gains after Cargill Inc., the second-largest U.S. beef packer, said it will keep buying animals fed with additives.
“We buy cattle that have been fed supplements, and we’re not we’re not planning to change what we do,” Michael Martin, a spokesman for Cargill Inc.’s U.S. animal-protein business, said today in a telephone interview. The closely held company, the biggest in the U.S., is based in Minneapolis.
Feeder-cattle futures for September settlement rose 0.9 percent to $1.57825 a pound after jumping the exchange limit of 3 cents to $1.59375, the highest since June 2012. Trading was 75 percent more than the 100-day average, according to Bloomberg data. The price has gained 12 percent in the past year.
Because the suspension is not effective until next month, it “gives cattle feeders plenty of time to stop using Zilmax,” Kay of Cattle Buyers Weekly said in a telephone interview. About 60 percent to 80 percent of cattle are given Zilmax or the alternative additive Optaflexx, manufactured by Eli Lilly & Co. (LLY)’s Elanco unit, he said.
Tyson rose 0.6 percent to $30.79 at 3:15 p.m. in New York Stock Exchange composite trading. Through yesterday, the shares doubled in the past 12 months.
Merck gained less than 0.1 percent to $48.57. Through yesterday, the shares gained 10 percent in the past year.
“Zilmax has been used globally for nearly two decades in countries including South Africa, Mexico, Canada, the U.S. and Canada, and South Korea,” Merck says on its website. “The safety of Zilmax is well documented by numerous independent, third-party experts.”
Wholesale beef reached $2.1137 a pound on May 23, the highest since at least 2004, U.S. Department of Agriculture data show. Since then, the price has dropped 11 percent to $1.8832.
“Either the size of the animals will shrink, or a lot more corn will be consumed” as feed, Jerry Gidel, the chief feed-grain analyst for Rice Dairy LLC in Chicago, said in a telephone interview. Zilmax is “a widely used additive in the U.S. and also by the exporters in Canada,” he said.
Corn futures for December delivery rose 0.3 percent to $4.5975 a bushel on the Chicago Board of Trade, ending a five-session slump. The price has tumbled 44 percent in the past 12 months on forecasts that U.S. farmers will harvest a record crop this year.
“You’re going to see beef packers follow suit” on scaling back supplements, Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Chicago, said in a telephone interview. “It’s getting harder to sell meat with additives in it as countries like Russia and China are refusing to buy it.”
Cattle futures probably won’t top this year’s high “because you shut demand off, and pork and poultry production is on the rise,” he said.
On Jan. 11, the most-active contract by open interest reached a record $1.35175.
The retail price of ground beef averaged $3.382 a pound in June, the most ever behind the record of $3.407 in January, U.S. Bureau of Labor Statistics data show.
“Cattlemen and women believe in the right of farmers and ranchers to responsibly use FDA-approved technologies,” Forrest Roberts, the chief executive officer of the National Cattlemen’s Association in Washington, said in a statement. “However, we take every report of animal welfare issues very seriously. We believe these products can be used responsibly when managed properly.”
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