US cattle slimmer as steer prices hit new highs, Zilmax removed

Reuters

By Theopolis Waters

CHICAGO, Oct 29 (Reuters) - Cattle are entering U.S. packingplants slightly thinner than a year ago as feedlots rush theanimals to market to cash in on record-high prices and are nolonger feeding them the growth promotant Zilmax, analysts andeconomists said.

The lighter cattle produce less beef at a time when thereare fewer cattle going to slaughter. The combination of lessbeef and fewer cattle should mean record cattle and beef pricesat least through the coming year, analysts said.

Recent droughts in the U.S. Midwest and Southwest plusrecord high feed prices caused a reduction in the U.S. cattleherd, which is now the smallest in more than 60 years.

Year-to-date U.S. cattle slaughter, as of Oct. 26, was down1.5 percent from the year earlier week, according to the U.S.Department of Agriculture. That decline helped drive prices forsome slaughter-ready cattle last week to an all-time high of$132 per hundredweight (cwt).

Slaughter steer prices, on average, for 2013 are on pace toset a record for a fourth straight year at roughly $125.70 percwt. Another record is expected in 2014, with prices averagingaround $129.75, said Ron Plain, a University of Missourieconomist.

During the week of Oct. 5, the latest weight data from USDAshowed steer weights on a carcass basis at 875 lbs, down 5pounds from the same period a year ago. During that same period,heifers shed 11 pounds to 796 lbs.

"Rising prices for slaughter cattle have resulted in areturn to profitability at the feedlot level. This, then, isencouraging them to sell cattle more quickly, holding downweights," said Elaine Johnson, analyst with CattleHedging.com inDenver, Colorado.

Other analysts and economists noted a marked decline incattle weights after Merck & Co. decided in August topull its feed additive Zilmax off the U.S. and Canadian markets.

Zilmax, the widely used and most potent among a host ofmuscle-building livestock additives known as beta-agonists, canadd upwards of 30 pounds of beef on cattle during their last fewweeks in feedlots.

Merck opted to suspended Zilmax for further testing afterthe country's leading meat processors Tyson Foods Inc and Cargill Inc stopped buying cattle in Septembergiven the additive, citing animal welfare concerns.

Since early September, some feedlots switched to using aless-potent beta-agonist called ractopamine, made by Eli Lilly &Co's Elanco Animal Health unit and sold under the brandname Optaflexx.

Additionally, some feedyards mitigated year-to-year weightdeclines by using more less costly feed - the result of thisautumn's bumper crop harvest. Both options require more time togrow cattle to heavier weight than Zilmax, said economists.

"The driving force of the current year-to-year decline indressed steer and heifer weights is the removal of Zilmax, andlargely the switching over to Optaflexx," said Denver-basedLivestock Marketing Information Center director Jim Robb.

He said the use of other beta agonists mitigated thedecline in carcass weight that would have possibly fallen asmuch as 25 lbs had the industry removed both Zilmax andOptaflexx.

David Hales, president of Texas-based Hales Cattle Letter,said in a recent newsletter to his clients that cattle feedersseem be relearning how to effectively market their cattle withZilmax no longer a part of the feeding equation.

Supplies of slaughter cattle in early October were muchtighter than anticipated and are expected to remain scarce intoDecember, said Hales.

"We suspect carcass weights peaked during the week of Oct.5 and will gradually work lower though the balance of thisyear," said Hales, citing forecasts for a wetter, colder secondhalf of the fourth quarter than a year ago, which should affectthe performance of cattle in feeding pens.

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