Cattle futures rose the most in six months on fears that U.S. beef supplies will shrink as Tyson Foods Inc. halted purchases of animals fed with a supplement made by Merck & Co. after discovering lame livestock at undisclosed factories.
In Nebraska, Tyson has beef plants in South Sioux City and Lexington.
Some animal health experts have suggested the use of the feed supplement Zilmax, also known as zilpaterol, is one possible cause for animals being unable to walk, according to a letter sent by Tyson to cattle suppliers. The “interim measure” is effective Sept. 6, and the “evaluation of these problems is ongoing,” according to the letter provided by Tyson spokesman Gary Mickelson. Merck said the supplement was safe.
Cattle futures climbed to a five-month high. Zilmax helps animals gain 24 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. The supplement typically is given for about 20 days in the month before livestock are sent to slaughter, he said.
Whether or not higher cattle prices can be sustained will depend on the answers to questions posed by John Harrington, chief livestock analyst for DTN/Progressive Farmer: "Will other packers follow suit in this ban? Will other beta-agonists be included in a broader ban? Will such a ban have a positive impact on export demand (e.g., Russia)? If Tyson is the only player here, all of the bullish potential may already be dialed into futures. Stay tuned."
This is not a food-safety issue, according to the letter from 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 Merck, said by email that “extensive” data and research showed the “behavior and movement of cattle fed Zilmax is normal.”
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 are down 3.9 percent this year.
The price pared gains after Cargill Inc., the second-largest U.S. beef packer, said it would keep buying animals fed with additives. Cargill has a beef plant in Schuyler.
Sixty to 80 percent of cattle are given Zilmax or the alternative additive Optaflexx, manufactured by Eli Lilly & Co. Elanco unit, said Kay of Cattle Buyer Weekly. Optaflexx is a brand of ractopamine. China and Russia have sought to restrict meat imports with that additive.
Either the size of the beef 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.
The retail price of ground beef averaged $3.382 a pound in June, behind the record $3.407 in January, U.S. Bureau of Labor Statistics data show.
Forrest Roberts, the chief executive officer of the National Cattlemen’s Association in Washington, said the association takes every report of animal welfare issues very seriously. "We believe these products can be used responsibly when managed properly.”