The apparent failure of the country’s biggest order buying firm has got the cattle business a buzz, but rumors are much easier to find than to verify.
What seems certain is that Eastern Livestock, LLC., one of the oldest and the biggest cattle order buyers in the U.S., has some $81 million in bad checks floating around the country. Their bank, Fifth Third Bank of Cincinnati on Wednesday filed to force the firm into receivership.
That is about all the "for sure" verified to date. Eastern’s phones didn’t answer on Wednesday. Superior Livestock—reputed to have been heavily dependent on Eastern as a customer—did not return a phone call.
But it looks like this is a case of another big player, working with big numbers and low margins, perhaps getting caught with a lot of float and a recalcitrant lender or creditor. Order buyers often buy cattle on speculation or receive payment for cattle days after paying for them.
USDA’s Packers and Stockyards Administration answered a request for more information, including verification of the size of Eastern’s bond, with a version of an earlier statement:
Following is what’s available on background while the investigation is underway:
USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) is onsite at Eastern’s headquarters assessing the situation, and investigating apparent violations of the Packers and Stockyards Act. GIPSA is working to ensure that all protections available are afforded to producers that might be impacted.
GIPSA is working with the Department of Justice to address the situation.
Producers who have not received payment due from Eastern are encouraged to contact the GIPSA Midwestern Regional Office, Des Moines, Iowa, at telephone 515-323-2579 for complete information on available financial protections, and for forms necessary for filing a bond claim on payments due from Eastern.
Bond claims must be filed within 60 days from the date of the transaction on which the claim is based.
There appears to be a significant amount that is owed for cattle to sellers in several states. As of November 9, GIPSA documented returned checks totaling $81 million; total transactions are estimated at $130 million.
Eastern Livestock Company, LLC, (Eastern), a market agency that buys and sells feeder cattle as a dealer and on an order buying basis, began issuing unfunded checks to producers for livestock purchased by Eastern in different markets on or around November 3, 2010.
Eastern Livestock Company is one of the largest cattle brokerage companies in the United States. It is headquartered in New Albany, Indiana, with operations in 11 states across the Mid-South, Midwest, and West.
Mark Mackey, CEO of Livestock Marketing Assocation, says that number of the association’s member auctions were holding bad checks, but said "our bigger worry are the individuals who sold (to Eastern) direct.
"If you went through an auction," he says of sellers, "you’re safe. The auctions are bonded." Some of those auctions make take losses though how serious that is remains to be seen. Rumors had several sales with bad checks in the seven figures on hand.
Some of them, he said, had called back trucks carrying Eastern-bought cattle after news of the company’s problem broke late last week, fearing their own checks would not cash
Some cattle feeders who normally buy through Eastern were reportedly paying direct to sellers for cattle they had purchased, though Mackey warned that might not protect the buyers during bankruptcy proceedings.