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By Theopolis Waters
CHICAGO (Reuters) - Tyson Foods Inc <TSN.N>, the largest U.S. meat processor, said that beginning September 6 it would no longer buy cattle that have been fed the growth enhancer Zilmax.
In a letter sent to U.S. cattle feedlots and obtained by Reuters on Wednesday, Tyson said it was concerned about recent 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. 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 company said in the letter.
Traders said rumors of Tyson's action contributed to Wednesday's gains in Chicago Mercantile Exchange cattle futures.
Late Wednesday afternoon in after-hours trading October live cattle were 2.500 cents per lb higher at 127.125 cents
Zilmax is manufactured by the animal health division of Merck & Co Inc <MRK.N>, the second-biggest U.S. drugmaker. Efforts to contact Merck by e-mail and telephone late on Wednesday were unsuccessful.
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.
The additive 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, a Midwest feedlot operator said.
"If Tyson is no longer going to slaughter cattle on Zilmax, other packers may follow suit," 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."
Removing Zilmax from feed rations will bring down the weight of cattle, resulting in less available beef which should drive up beef prices, he said.
Tyson's website shows that it has 26 percent of the U.S. beef market and its plants on average process 132,000 head of cattle a week.
Shares of Tyson, the largest U.S. meat producer, 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)