Zilmax doing zilcho to Cattle futures?

Organic food lovers and animal rights activists alike are celebrating after a domino effect of large players doing away with the growth inducing drug Zilmax. First, Tyson Foods says they’ll no longer accept cattle with, Zilmax, followed by Zilmax producer Merck announcing today they would stop selling it in the US.  What’s all the fuss about? Agri-view outlined that the meat processor giant sent a letter to cattle feeders this month stating they’re taking action after noticing cattle struggling to move and walk, with some exceeding 1,300 pounds.

Zilmax

Photo Courtesy: The Sleuth Journal 

The letter stated:

“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. 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.”

So what does all this mean for supply and demand in the beef market, and their corresponding futures – live cattle and feeder cattle? Apparently not much, with both essentially unchanged today at +0.22% and +0.39%.

But not everyone is so sure this isn’t a big deal. At least one meat trader we work with put on some long positions due to this news. The logic: Tyson stated they would stop accepting cattle with Zilmax after September 6th, but then what happens to the cattle who have been fed Zilmax that aren’t slaughter ready by the 6th of September?  It would seem there would be a rush to sell/slaughter any and all of your cattle with Zilmax before that date, leading to an abnormal amount of supply coming onto the market.

Seems logical… even if the futures markets aren’t reflecting it today. We’ll see how this plays out over the next three weeks (til the 6th), if at all.

 

 

One comment

  1. You said the meat trader put on some long positions. Wouldn’t it make more sense to short Sept Cattle now if there’s going to be abnormal supply coming to it before the 6th?

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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