By Tom Polansek and P.J. Huffstutter
CHICAGO (Reuters) - Merck & Co's decision to suspend sales of its Zilmax cattle feed additive has caused such a surge in demand for rival Eli Lilly & Co's Optaflexx that Lilly is telling some new customers it cannot immediately supply them, customers told Reuters.
Zilmax became the focus of attention in the livestock industry after Tyson Foods Inc said on August 7 that it will stop buying Zilmax-fed cattle for slaughter beginning next month. Tyson, the biggest U.S. meat processor, said it was concerned about Zilmax potentially causing health problems for some cattle.
Merck announced on August 16 it was temporarily suspending sales of the product in the United States and Canada.
Optaflexx, sold by Lilly's Elanco Animal Health, and Zilmax both belong to a family of drugs called beta-agonists, a class of non-hormone growth promoters that have been deemed safe for animals and humans by the U.S. Food and Drug Administration. Both products are fed to cattle prior to slaughter to increase weight by as much as 30 pounds of lean meat.
Elanco denied that its supply of Optaflexx is short of the industry's current demand. The company is "managing the supply over the next two weeks as we assess the long-term market demand," company spokeswoman Colleen Parr Dekker told Reuters in a statement on Friday.
Elanco last week told Reuters that its on-hand supply of Optaflexx was sufficient to handle demand. That assessment was focused on Tyson customers before the withdrawal announcement from Merck, Elanco said on Friday.
Elanco declined to comment on how much demand for Optaflexx has increased in recent days. The company does not publicly break out sales figures for the additive.
Some new Elanco customers told Reuters they are being put on a waiting list for Optaflexx due to limited supplies. Other new customers are having their orders only partially filled, said Tom Bejot, a feedlot manager in Ainsworth, Nebraska.
Existing customers said they are being assured that their needs will continue to be filled by Elanco.
"For all their customers who have been using Optaflexx, they're calling to see how much everybody needs," said Tom Williams, manager of Chappell Feedlot in Nebraska.
Williams said an Elanco representative called his feedlot on Thursday to find out how much Optaflexx its cattle are fed each month.
About 70 percent of cattle brought to slaughter in the United States are fed beta-agonists, according to industry estimates. Merck's Zilmax was the dominant beta-agonist for U.S. cattle feeders, and last week Merck disclosed it had about $159 million in U.S. sales of Zilmax last year.
Merck has said no safety issues have been discovered in 30 studies since Zilmax was introduced in the United States in 2007.
Tight supplies of Optaflexx could temporarily pinch beef production at some feedlots, said John Nalivka, an expert on livestock and president of Sterling Marketing Inc. However, there should be little impact on the nation's overall beef supply, he said.
"We're not going to run out of beef," Nalivka said, adding that feeders can adjust feed rations and take other steps to control meat production.
Some cattle feeders who formerly used Zilmax said they are frustrated that they are having trouble immediately ordering an alternative. For many, the drugs have been a way to reduce some of the economic pain caused by high costs for grain fed to cattle.
Bejot Feedlots in Nebraska, which feeds Optaflexx to some of its 10,000 cattle, received a call on Thursday from an Elanco sales representative who said supplies of the drug were tightening, Tom Bejot said. According to Bejot, the representative said Bejot would continue to receive Optaflexx but that new customers will not be able to buy all they need.
"Guys that are switching don't get preferential treatment, at least until Elanco catches up," said John Nelson, vice president of commodities for Producers Livestock Marketing Association
(Editing by Bob Burgdorfer)