DENVER, Colo. – Livestock dealers and producers say it is time to change the way cattle are bought and sold in the United States, following the collapse of an Indiana dealer.
The Federal Grain Inspection and Packers Stockyards Administration (GIPSA) has been investigating Eastern Livestock Co. since November and estimates it owes $130 million to 743 sellers in 30 states.
The company was charged with failure to pay for livestock purchases, failure to pay in a timely manner and failure to maintain an adequate bond.
A livestock marketing committee that met during the recent National Cattlemen’s Beef Association convention in Denver talked about the need for more audits, improved methods of payment and a new bonding structure to protect sellers when auction markets and dealers fail.
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GIPSA requires licensing and bonding of livestock dealers but does not define how large a bond should be, said Van Dewey of Rabo Agrifinance.
“The bonds obtained by livestock dealers are often five percent of the livestock transactions they do annually,” he said.
Eastern conducted $2 billion in purchases a year but its $875,000 bond covered only 12 percent of one day’s purchases.
“Eastern was trading more than four million cattle in one day,” said Kansas attorney Allie Devine.
Millions of cattle trade each day and a handshake is not good enough, she added. When a company fails, auditors often discover there is no paper trail of contracts, invoices or standardized business forms.
“There is nothing wrong with paper. Use of paper becomes all important when you have to recreate a transaction that has gone bad.”
Devine said six stockyards failed in the last 10 years and creditors were paid 40 cents on the dollar. Thirteen livestock dealers failed in the same period and 18 cents on the dollar was paid.
Prompt payment within 48 hours should be expected, said Steve Owens, owner of Joplin Regional Stockyards at Joplin, Missouri, which deals in 450,000 cattle per year.
Modern technology and electronic money transfers means there is no longer a reason to wait for 10 days for a cheque to clear, he added.
“It is critical for the industry to change the way cattle are paid for.”
Dewey said sellers should ask for electronic transfer or a certified cheque before cattle are loaded on the truck. If the buyer refuses, they should ask why.
“Assume there is no ironclad assurance you will get paid,” he said.
In Canada, provincial agriculture departments administer legislation that governs the bonding of licensing of livestock dealers.
Alberta recently passed the Livestock Identification and Commerce Act. It is administered by Livestock Identification Services, which handles brand inspections for cattle and horses.
LIS manager Dave Moss said the new act allows for better monitoring and auditing of companies.
The agency also manages the livestock assurance fund set up in 1994. Five cents from every transaction is directed to the fund on a voluntary basis to provide 80 percent protection when non-payment occurs.
Few claims have been made on the $8 million fund.
“The (U. S.) livestock marketing association has been calling us, getting more details about that fund and wondering if they should create a transactional insurance program,” Moss said.
Like most jurisdictions, Alberta requires payment within two business days and dealers are audited at random every year.
“We’re in good shape, but we are not nave. Anybody who wants to do something fraudulent, no legislation is going to stop them,” Moss said.
“It is just how much damage can they inflict before they get caught.”
Many companies direct wire money to ensure prompt payment and guarantee the cash exists.
Saskatchewan livestock dealers are governed under the Animal Products Act, which requires they be licensed and bonded.
The minimum coverage is $25,000 and can reach as high as $250,000, depending on how many head are handled each year.
Dealers are audited regularly to renew licenses.
In British Columbia, the agriculture ministry licenses auctioneers, livestock dealers, hide dealers, public sale yards and slaughter facilities under its Animal Disease Control Act. The act is currently under review.
B.C. slaughter houses that buy 500 animals or less requires a $10,000 bond, while an establishment dealing in more than 100,000 head requires $400,000 coverage.
A livestock dealer purchasing fewer than 500 head per year carries a $20,000 bond and those dealing in more than 200,000 head must have a $250,000 bond.
Manitoba’s agriculture department licenses livestock dealers and agents.
Individual order buyers and auction marts must have a dealer’s license. Abattoirs that are not exclusively custom slaughtering should have a dealer’s license.
Bond coverage is determined by livestock volume sold on an annual basis. If a default occurs, sellers may claim against the dealer’s bond to recover full or partial value of the livestock.
