Aug. 8 (Bloomberg) -- Cattle futures jumped the most in 15 months on concern that U.S. beef supplies will shrink as Tyson Foods Inc. halts purchases of animals fed with a supplement made by Merck & Co. 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.
Cattle prices extended a rally 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 by the exchange limit of 3 cents, or 2.4 percent to $1.27675 a pound at 8:29 a.m. on the Chicago Mercantile Exchange, the highest for a most- active contract since March 13. A close at the price would mark the biggest gain since May 3, 2012.
Trading soared eightfold compared with the 100-day average for this time, according to data compiled by Bloomberg. Through yesterday, cattle dropped 5.8 percent this year.
Feeder-cattle futures for September settlement rose 1.5 percent to $1.58675 a pound after jumping the exchange limit of 3 cents to $1.59375, the highest since June 2012. Trading soared sixfold compared with the 100-day average, according to Bloomberg data Through yesterday, the price gained 12 percent in the past year.
"The Tyson news has changed the near-term outlook for the market," and investors are unwinding bets on a decline, Dick Quiter, an account executive at McFarland Commodities LLC in Chicago, said yesterday in a telephone interview.
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.’s Elanco unit, he said.
Optaflexx is a brand of ractopamine. China and Russia have sought to restrict meat imports with that additive.
Tyson rose 0.4 percent to $30.71 in New York Stock Exchange composite trading. Through yesterday, the shares doubled in the past 12 months.
Merck rose 0.3 percent to $48.71. 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 $1.8866.
"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 0.9 percent to $4.6225 a bushel on the Chicago Board of Trade. Through yesterday, the price tumbled 43 percent in the past 12 months on forecasts that U.S. farmers will harvest a record crop this year.
--Editors: Patrick McKiernan, Millie Munshi
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