Eastern Livestock’s Bond

After my post yesterday about Eastern Livestock, in which I cited a rumor about the size of the company’s bond, John Robinson at the Western Livestock Journal sent me a note pointing out that GIPSA maintains a website listing the bonds maintained by traders. http://archive.gipsa.usda.gov/psp/dealersBOC_list.pdf

Sure enough, it shows Eastern right at $875,000—vs. more than $80 million in bounced checks and apparently $120 million floating.

I'm going to tell you everything I know about bonding requirements after 55 years of buying and selling livestock and 40 plus years of writing about it. Are you ready? You got time?

Zip. Zero. 

I have always trusted the system. I harvest some cattle, I haul them to the bonded sale or sell them to a bonded order buyer or haul them to bonded feedyard and sell them to a bonded packer and wait, naively, I guess, for my check. I buy some cattle, I write a check and figure I’ve got title to some cattle.

They are, after all, bonded. The Eastern Livestock thing—that’s less than 8 cents on the dollar if I don’t get my zeros mixed up—makes me wonder just what that means. If it means I’m not protected, then I'd rather do what one guy I talked to suggested: Use Paypal. Or at least get a certified check like I would if I was selling to somebody I don’t know.

If you want a fright, look at the list and notice how many of those traders are bonded only to $10,000. That would, apparently, near as I can figure out without more information, be because GIPSA requires bonds covering the AVERAGE of 2 days’ trade. So, a guy who buys a few loads of cattle a month, or quite a number of loads for a little while each year, wouldn’t have a very high average over 2 days.

So if you sell to such a fellow more than his average—say an entire gooseneck load of weaned calves—you’d be protected only to the $10,000 should he default. I’d never seen that site, and--I don’t know about you--but never in my life have I asked a buyer what he means when he says he is “bonded.” I thought it meant if he went broke before my check cashed, his bond would finally pay off.

I mean, these guys aren’t all like your local sale barn, with lots of pipe and good real estate to back up their bets. Many of them don’t have much more than a Rolodex, a fancy pickup and a girlfriend with too much makeup.

Curiously, the packers carry much larger bonds, according to the web site. Tyson’s bond is more than $88 million. It handles more cattle than Eastern, but nowhere near 100 times more

This all strikes me as curious. I believe we’ll dig into it a little more.