CME to End Delivery of Cattle Fed Growth Additive Zilmax -- Update
By Kelsey Gee
CHICAGO-Chicago Mercantile Exchange, the world's biggest futures exchange operator, said it will stop accepting cattle
fed with Zilmax for delivery against contracts traded on its exchanges, the latest move to halt use of the controversial
growth additive made by Merck & Co. (MRK)
The exchange operator, a unit of CME Group Inc. (CME), said in a notice to customers Monday that it will implement the
new policy starting Oct. 7. It said the notice "clarifies that cattle which have been fed additives that prohibit them
from being purchased for slaughter under the current commercial practices imposed by major cattle slaughter facilities
are unmerchantable and are to be excluded from the delivery unit."
Zilmax is a beta-agonist additive that is given during the final few weeks that cattle are in feedlots, making the
animals heavier and their meat leaner at slaughter. The product is produced and marketed by Merck's animal health
division, which announced on Aug. 16 that it would halt the sale of Zilmax in the U.S. and Canada while it investigates
problems of animal lameness and immobility that some companies are associating with the drug.
Merck's move followed an announcement made by Tyson Foods Inc. (TSN) on Aug. 7 that it would suspend purchases of
cattle fed Zilmax effective Sept. 6 due to animal welfare concerns. The company said it did not believe Zilmax causes
any food-safety issues.
Cargill Inc. told its cattle suppliers later in August that it would no longer buy cattle who were fed Zilmax,
starting at the end of September.
Zilmax, fed to cattle in the final weeks before slaughter, can add about 2%, or 24 to 33 pounds, to an animal's
weight. Before Tyson's move, Merck had estimated that about 70% of the U.S. beef industry's cattle supply was fed with
Zilmax or Optaflexx, a competing product made by Eli Lilly & Co.'s (LLY) Elanco unit. Optaflexx remains on the market.
Cattle futures have climbed 4.9% in the seven weeks since Tyson's announcement, in part because of expectations that
without the growth-promoting agent, supplies of beef could be pinched. The U.S. herd is already at its smallest size
since 1952, due to years of drought driving up the price of feed and consolidation in the industry. Live-cattle for
October delivery were up 0.5% mid-session Tuesday, at $1.272 a pound, buoyed by steady demand for beef amid a
contracting supply of slaughter-ready cattle.
The new exchange guidelines will be implemented by the time market participants are required to announce intentions to
deliver cattle against the October live-cattle futures contract, which expires Oct. 31.
"The majority of slaughter facilities that are approved for CME deliveries are no longer accepting Zilmax-fed cattle,"
said David Lehman, CME managing director of commodity research and product development. "We felt it deserved clarifying
with regard to our rules."
Mr. Lehman added that the exchange had also learned that other slaughter facilities were likely to follow suit, making
Zilmax-fed cattle essentially unsellable.
National Beef Packing Co. of the U.S., JBS SA (JBSAY, JBSS3.BR) of Brazil, and several smaller packing plants are
approved for live-cattle delivery by the CME.
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