A rally in cattle futures, after Tyson banned cattle finished using Zilmax, ran out of steam amid doubts over the impact of the move, with Societe General saying it enhanced the prospect of underperformance by feeder cattle futures.
Live cattle futures for August, which at one point in the last session rose the exchange limit of 3.00 cents a pound, closed at 122.50 cents a pound in Chicago on Friday, easing 0.175 cents.
Futures in feeder cattle - animals ready for fattening - dropped 0.40 cents a pound to 153.85 cent a pound for August delivery.
The declines came amid some reassessment of the initial market idea, after Tyson late on Wednesday announced its ban, that the weaker use of the Zilmax growth promoter would, in cutting animal weights, squeeze beef supplies.
"We feel this will decrease beef production approximately 10m pounds per week, at least," broker Country Futures said, terming it a "fundamental supply shift" which, in reducing volumes, will change the leverage the packing industry has on cattle feeders".
Tyson, which is responsible for a little over one-quarter of US cattle slaughter, said that it would from September 6 no longer accept cattle fed with Zilmax, on grounds that some animal health experts believe it leaves animals with difficulty walking.
However, the prospect of industry-wide curbs on Zilmax use declined after rival meat packer Cargill said that it planned to continue accepting cattle finished using the drug, which is typically used during the last three weeks ahead of slaughter, and boosts weight gain by up to 21 pounds, according to the University of Wisconsin.
"A big unknown is whether other packers will follow suit or if they will continue to accept Zilmax fed cattle," a report from Paragon Economics and Steiner Consulting said.
"If other packers continue to accept Zilmax-fed cattle, the overall impact on steer and heifer carcass weights will be more limited."
Feeder cattle impact
Furthermore, the Tyson move still leaves the door open to cattle fed with other growth promoters, so-called beta agonists, although alternatives, such as ractopamine, are deemed by many observers as less effective.
"Cattle feeders will find an alternative to Zilmax which will comply with their packer's requirements," Paul Georgy at broker Allendale said.
"Tyson's ban on buying cattle that have been fed Zilmax may not have as much of an impact on cattle production as first thought."
Indeed, even if feedlots do respond by curbing use of growth stimulants and keeping cattle for longer, the impact may not be higher prices throughout the complex, Societe Generale said.
"Any increase in feeding period length further reduces the nearby need for feeder cattle, delaying feedlot purchases," SocGen analyst Christopher Narayanan said.
This dynamic "reinforces our view that the feeder cattle price reaction to tight [cattle] supplies is largely past".
Feeder cattle futures for August last week hit 154.70 cents a pound, the highest for a spot contract of 2013.
Grains debate too
Tyson's Zilmax ban has spurred comment in grain markets too, with suggestions of higher corn feeding in the cattle sector, assuming feedlots extend finishing periods.
"Tyson's decision to refrain from slaughtering cattle that have been fed Zilmax could provide support to the corn market if feedlot operators choose to feed more corn to add weight to their cattle," CHS Hedging said.
However, Country Futures said that it "completely disagrees with that assessment", saying the feedlots only use Zilmax on cattle that, on historical measures, as already "basically finished, because that is how they get the most benefit" from the drug.
"We feel that not using Zilmax will actually decrease corn and corn by-product use because it will decrease the number of days fed," the broker said.