Will beef production plummet with Zilmax suspension?

Amid all the discussion and debate around the issue of Zilmax (zilpaterol hydrochloride) over the past two weeks, one thing is clear: The product performs as advertised in terms of boosting carcass weights and lean-meat yield. So when Tyson announced on August 7 it would place a moratorium on purchasing cattle fed Zilmax due to animal-welfare concerns, followed by Merck Animal Health temporarily suspending sales of the product on August 16, speculation arose as to how the reduction in beef production would affect markets.
And indeed, fed-cattle futures and boxed-beef prices have moved higher, with anticipation of shorter beef supplies probably playing a role.
However, industry reports suggest the impact of removing Zilmax from finishing programs, while significant, might not be as dramatic as some have speculated.
In USDA’s Livestock, Dairy and poultry Outlook report last week, the agency speculates that impacts on beef supplies could be mitigated by feeders switching to the alternative beta agonist product – Optaflexx (ractopamine hydrochloride) – and by lower corn prices allowing feeders to cost-effectively feed cattle to heavier weights. The USDA report was issued after Tyson’s decision but before Merck announced its suspension of sales.
In Monday’s Daily Livestock Report, authors Steve Meyer and Len Steiner note average fed-cattle carcass weights in 2012 increased by about 19 pounds, or over 2 percent, compared to those during 2011 – a relatively large jump after five years with little to no increase. That increase in carcass weights corresponds with widespread adoption of beta agonists.
The authors also note that many cattle feeders currently using Zilmax likely will switch to its competitor Optaflexx during the suspension. They estimate the switch would reduce carcass weights by six to eight pounds.
The USDA report points out that before Tyson’s letter to cattle feeders, the five-day moving average for beef cutout values had begun to seasonally increase from a low of $180.54 per hundredweight on August 5, 2013. On Monday, August 19, the Choice cutout averaged $195.22 per hundredweight. The increase is consistent with seasonal patterns, and the authors say any boost in wholesale cutout values if beef supplies are tightened as a result of Tyson’s Zilmax ban will likely be relatively small. As noted, their analysis came before the Merck decision to temporarily suspend sales of the product.
Nevertheless, it seems likely that lower corn prices and the option to use another beta agonist will help moderate any decline in beef production.

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