Kay's Korner

Jun 28, 2013

Beta-agonist’s deadly downside

The beef industry promotes the use of what it calls new “technologies” to increase productivity and help producers make more money. Producing more pounds per head makes economic sense, especially as the U.S. cattle herd continues to shrink. One technology whose use is now widespread is feed additives, commonly known as beta-agonists, which add more pounds of lean meat to carcasses.

Pork producers started using a ractopamine-based additive called Paylean and cattle feeders eventually followed suit with Optaflexx (ractopamine-based) and Zilmax (zilpaterol-based). Cattle feeders in recent years agonized over their use but eventually began to use them after deciding they couldn’t afford not to use them. They deemed they would be at a competitive disadvantage to other cattle feeders if they didn’t use them.

Between 60 percent and 80 percent of all the cattle on feed now receive either Zilmax or Optaflexx. But recent ractopamine-based bans on U.S. beef and other questions have caused many in the industry to question this high usage. The European Union, Russia, China and Taiwan are among the countries that will only accept beef or pork certified as free from ractopamine (a term that in effect refers to all beta-agonists). The U.S. Meat Export Federation says that these bans cost the U.S. $97 million in lost beef exports the first four months of this year and $58 million in lost pork exports.

Other questions now being asked include: beta-agonists’ possible effect on beef quality in terms of quality grade and tenderness; their effect on animals’ welfare and overall care; what beef consumers might think about their use and how widely the industry should explain their use.

The last point is especially complicated. People who regard themselves as higher beef consumers have told researchers they don’t want to know more about feed additives. But light beef users say they want to know everything about how beef is produced. Then there’s last year’s media furor over lean finely textured beef that forced a company to close three of its four manufacturing plants. The prospect of a distorted, sensationalized media story about the use of beta-agonists in beef production might seem unlikely. But some in the industry say it remains a ticking time bomb.

Much of this has been written up in some form or other in recent months by both the trade and general media. What is much less publicized is what I regard as the biggest downside to the beef industry’s use of beta-agonists. Their use has significantly altered the pricing and marketing of live cattle in a way the industry could not have imagined 10 years ago.

The use of beta-agonists demands a narrow marketing window if cattle feeders are to get the full monetary benefits from their use. This narrow window has meant much less flexibility in marketing cattle. For example, there is a threeday withdrawal period after cattle receive their last dose of Zilmax. Then cattle feeders have only 10 to 12 days to get those cattle dead to maximize Zilmax’s value.

Cattle feeders, therefore, have turned to more marketing agreements with packers to guarantee shackle space each week. This means more cattle than ever are priced on formulas. Some are based on the national cash market, some on the area market and some on plant averages. The result is that the fewest live cattle in history are now sold on the negotiated cash market. Yet it still remains the basis for most formula pricing.

As Nebraskas Cattlemen’s Jeff Stolle noted in an article in March 2013’s Nebraska Cattlemen, latest USDA data indicates that only one of the five major cattle feeding areas in 2012 sold the majority of its cattle on the cash market. Iowa-southern Minnesota sold 56.2 percent of all its cattle this way, according to packer transaction data. Packers tell me cattle feeders in this region, which includes Illinois, don’t use beta-agonists, hence the large cash trade. In contrast, they are widely used on the Southern Plains (Texas, Oklahoma, New Mexico) and in Colorado. So the cash trade there has declined to 10-12 percent. The cash trade in Kansas was about 28 percent. Even in Nebraska, the cash trade declined to 39 percent in 2012 from 60 percent in 2009, notes Stolle.

There’s another market aspect to the use of beta-agonists. Once cattle feeders started using them more extensively, some analysts say they bid away their monetary benefits into the price of feeder cattle. It is no surprise that many cattle feeders are now privately saying they wish beta-agonists would just go away. Every packer I speak to feels the same way. But for large cattle feeding operations to stop using beta-agonists means risking their feeding margins. Perhaps they should talk to farmer-feeders in the Corn Belt to see if they make money without their use. — Steve Kay