Top beef producer Tyson Foods, Inc. (NYSE:TSN) has decided to stop buying cattle that are fed the growth additive Zilmax, produced by Merck & Co., Inc. (NYSE:MRK). Tyson Foods, Inc. (NYSE:TSN) notified its cattle suppliers that it was concerned about certain animals not being able to walk and showing other signs of lameness. The specific cause of the problem hasn’t been identified, but some animal experts have noted the possibility that the use of Zilmax could be the reason.
Zilmax is part of a group of drugs called beta-agonists, and cattle feeders use the drug to rapidly increase weight gain in animals. Eliminating the additive from cattle feed will lead to smaller animals that produce less beef. Less beef available for sale could lead to higher prices; live cattle futures rose recently to their highest levels in three months.
Along with Tyson Foods, Inc. (NYSE:TSN), Smithfield Foods, Inc. (NYSE:SFD) has stopped using another beta-agonist called Optaflexx made by Eli Lilly & Co. (NYSE:LLY)‘s Elanco animal health division. Unlike Zilmax, Optaflexx uses the drug ractopamine, which Smithfield Foods, Inc. (NYSE:SFD) has stopped feeding to its pigs. For now, Tyson Foods, Inc. (NYSE:TSN) and Smithfield Foods don’t appear to be starting a trend in the industry as other meat producers like Cargill and National Beef Packing are continuing to feed beta-agonists to their animals.
Animal health or export sales?
For meat producers, the economic downside of lower-weight animals is that the cost of raising these animals rises. However, suspending these drugs can boost exports, since several countries have banned the purchase of U.S. beef, pork, and turkey due to the use of beta-agonists.
Smithfield Foods suspended its use of Optaflexx to gain access to China’s growing market for imported pork. In May, the company signed a merger agreement with Shuanghui International, China’s largest meat processing company, and the transaction is expected to close in the second half of 2013.
Tyson Foods, Inc. (NYSE:TSN) had losses in its China business due to the avian flu outbreak. Demand has improved since the outbreak and is expected to return to normal. The company experienced reduced pork exports in the third quarter and next year expects a reduction of 2% to 3% in its beef segment. Hog supplies are predicted to be flat next year.