By Theopolis Waters
CHICAGO (Reuters) - Tyson Foods Inc, the largest U.S. meat processor, said it would suspend purchases of cattle fed the growth enhancer Zilmax, saying it was worried about cases of cattle with difficulty walking although it did not know the specific cause of problem.
Rumors of Tyson's action sparked a sharp rally in Chicago Mercantile Exchange cattle futures on Wednesday. Removing Zilmax from feed rations would bring down the weight of cattle, resulting in less available beef and likely drive up beef prices.
Merck & Co Inc, whose animal health division manufactures the additive, said in a statement that tests have proven that Zilmax is safe and that it was working with Tyson. Its website says that Zilmax has been used in cattle globally for nearly two decades.
Tyson said it would suspend purchases beginning September 6, citing cases of cattle being delivered to its plants with difficulty walking or being unable to move.
"We do not know the specific cause of these problems, but some animal health experts have suggested that the use of the feed supplement Zilmax, also known as zilpaterol, is one possible cause," it said in a letter to U.S. cattle feedlots.
"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 letter said.
October live cattle were 2.500 cents per lb higher at 127.125 cents in after-hours trading on Wednesday, with a Midwest feedlot operator noting that if Tyson distances itself from Zilmax, other meat packers may follow suit. The daily price limit for cattle price moves is 3.000 cents.
Tyson's website shows that it has 26 percent of the U.S. beef market and it on average processes 132,000 head of cattle a week.
Zilmax is blended with other feed rations and vitamins and fed to cattle during the last few weeks they are in feedlots before being processed into beef, the feedlot operator said.
"However, there will be a large amount of cattle that goes through the pipeline before the effect of not using the additive is seen, which could take upwards of 90 days," the feedlot operator added.
Merck said its animal health division had offered technical assistance, both internal and external experts, to help Tyson to understand what is behind the instances at its facility.
"Merck Animal Health is confident in the extensive research and data behind the product and the fact that its safety has been well demonstrated," it said.
Last month, Merck reported lower-than-expected second quarter revenue, partly because of disappointing results for animal health products. Animal health sales fell 2 percent to $851 million, hurt by weak demand for swine products.
Shares of Tyson jumped to all-time highs this week after the company reported on Monday that strong meat demand drove a bigger-than-expected jump in quarterly profit.
(Additional reporting by Tom Polansek; Editing by Bob Burgdorfer and Edwina Gibbs)