Zilmax Ban Raises Questions

By Katie Micik
DTN Markets Editor

OMAHA (DTN) -- Sales in the U.S. and Canada of feed additive Zilmax will be temporarily suspended, Merck & Company's animal health division announced Friday.

The announcement followed Tyson Foods Inc.'s move to suspend purchases of cattle fed Zilmax as of Sept. 6. The Tyson decision caused futures markets to spike Thursday, Aug. 8, but the long-term impact on prices depends on a number of variables, experts say.

"As far as real market impact, it's going to depend upon whether anybody follows suit," DTN Livestock Analyst John Harrington said. "If Tyson's all alone out there, it's probably not going to have a huge market impact. On the other hand, if JBS, National and Cargill all get on the same page, well, then that will have ripples."

A widespread ban on the drug, which helps cattle gain 24 to 33 pounds in their final month, could reduce carcass weights and "if carcass weights come down, that could be bullish in terms of less production," Harrington said.

However, National Beef Packing Co. and JBS SA announced Monday, Aug. 12, they wouldn't change their cattle buying practices but will monitor the situation closely. On Aug. 8, Cargill announced it will still buy cattle fed Zilmax. That suggests the market impact will be limited, for now.

Senior Vice President of Research and Development in Merck's animal health unit KJ Varma said Friday the company remains confident in the safety of Zilmax, Dow Jones reported.

Zilmax is one of two common, FDA-approved beta-agonists fed to cattle in the month before they're sent to meat packers. Optaflexx, the other popular product, causes about a 10- to 12-pound weight gain, said Steve Kay, editor of Cattle Buyers Weekly.

Concerns about Zilmax aren't new. Kay said he knew Tyson had been concerned for a year or more about its impact on animals' ability to walk. Tyson stated the issue is an animal welfare concern, not a food safety concern.

Merck, the maker of Zilmax, has said the drug is safe and the company is working with Tyson to understand the issues at hand. On Tuesday, Merck released a five-step plan to train and certify feedlot workers on proper use of Zilmax.

Kay said most evidence suggests 60% to 80% of the nation's cattle herd is fed a beta-agonist, and the split between the two is roughly 50-50.

"Some cattle feeders will decide not to use either. Others will decide to switch," Kay said. That's one way to curb a carcass weight decline.

Cattle feeders could decide to feed to heavier weights as new-crop corn price fall, Kay said. That would also negate a possible drop in carcass weights.

"As we get closer to harvesting new-crop corn, cattle feeders will look at feeding to heavier weights as long as cost of gain is cheaper than selling price," Kay said.

Beef production is expected to decline 2% to 3% in 2014 as cow numbers haven't bounced back from drought-induced declines, Harrington said. Assuming the ban spreads beyond Tyson and 10 to 15 pounds are trimmed from each carcass, that could pull production down by half a billion pounds, or 1% to 1.5%.

"That sounds like a lot, but it's really not that much. That's probably, if you assume demand will stay the same and cut production by 400 million pounds, a $3-$4 rise in live cattle prices," Harrington said.

The market is already looking at lower beef tonnage, and taking away feed additives could reduce supply even more. Packers would then have to pay more for the reduced supply of cattle, and that makes Harrington wonder if the ban is about more than animal welfare.

"I wonder if they are really thinking they can sell more beef internationally by doing that because they're really sacrificing some efficiency in lower carcass weights," he said. Becoming more competitive internationally, perhaps reopening the Russian market and gaining access to China, would be good for the beef market, he added.

But Kay added the active ingredient in Zilmax is zilpaterol, while Optaflexx's is ractopamine, which has been at the center of the global debate on feed additives. In February, Russia banned U.S meat imports over the use of ractopamine.

Katie Micik can be reached at katie.micik@telventdtn.com

(AG/CZ)

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