'Shock wave' follows change in Tyson's beef policy
The meat producer decides to stop buying animals receiving a drug that helps cattle bulk up in the last weeks of their lives.
The result for consumers is that the prices of steaks and other beef products will likely go up. On the plus side, their meat may have one less additive in it.
Controversy has surrounded the industry's use of Zilmax, which is sold by Merck Animal Health, one of the fastest-growing units of Merck (MRK). Zilmax was originally created to help people with asthma, Christopher Leonard writes on Slate. But researchers found that it makes animals produce more muscle and less fat.
The drug causes cattle to bulk up dramatically in the last few weeks before slaughter. That produces more meat for consumption, and it was embraced by food producers, who could suddenly get more revenue from a single animal. Merck Animal Health says that Zilmax doesn't cause the quality of steaks to suffer and that people can't tell the difference between beef that has and has not been treated with the drug.
But Tyson noticed a curious change in its cattle: They couldn't walk, and in some cases they couldn't move at all. The company said Thursday that while it couldn't directly point to Zilmax as the cause, it was going to stop buying any animals fed Zilmax anyway.
"Our evaluation of these problems is ongoing, but as an interim measure we plan to suspend our purchases of cattle that have been fed Zilmax," the company said in a letter sent to U.S. cattle feedlots and obtained by Reuters. Merck responded by saying that Zilmax is safe and that it has been working with Tyson to figure out what's happening to the cattle.
Dennis Smith, a commodities broker who publishes a daily livestock report for the industry, said Thursday that cattle companies are in shock after Tyson's announcement. Cattle futures on the Chicago Mercantile Exchange rallied sharply on the news as traders expected cattle weight and production to drop -- and, as a result, the price of beef to rise.
Smith said in his daily report that he doesn't think Tyson is motivated by health concerns over cattle. He thinks Tyson wants to beef up its export business, and overseas customers simply don't like Zilmax and other additives in their meat.
"I suspect that Tyson is in the process of negotiating with China specifically to export more beef overseas, and while Zilmax is not specifically banned, I think a lot of our export customers do not want animals that are fed feed additives," Smith said. "This is a negotiation process on behalf of Tyson to open the door for additional beef export business."
The larger question for Merck now is whether other beef producers will follow Tyson's example. Four major meat companies control 85% of the market, Slate writes, and they reportedly all had used Zilmax. In addition to Tyson, they include JBS SA (JBSAF), Cargill and National Beef Packing Co.
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When I was studying to become a chemist in the early 1970's, a dark joke that went around college research labs was:
How many chemists does it take to synthesize a chemical which, when added to cattle feed, will make cattle grow 20% heavier?
Answer: 51. 1 to synthesize diethylstilbesterol and 50 to find a cure for cancer.
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The news from Europe knocked the key indices from their early highs, while giving a boost to safe-haven assets like gold futures (+0.5% to $1290.80/ozt), Treasuries (10-yr yield -1 bps to 2.69%), and the Japanese yen (102.30 ... More
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