Payment problems still plague auction markets

News
Sep 21, 2012

The cattle industry has had some issues making sure sellers get their money from auction sales, but some efforts are in the works to make sure the bucks stop in the right place, at the right time, and to the right people.

Following the scandal and eventual collapse of Eastern Livestock, the matter of payment of auction cattle has become more pressing. The company’s leaders were indicted for mail fraud and the company was alleged to have been involved in a six-year-long spate of check kiting. The overall loss to producers in bad checks was estimated at $130 million. The bankruptcy, where Eastern Livestock wasn’t able to make good on many recent sales, was said to cost the market $30 million worth of cattle.

Other cattle auction yards have had similar issues as Eastern Livestock, though not on the massive and widely publicized scale. Most of the recent reports of cattle theft in this and other news outlets have involved misuse of auction markets in some fashion.

A quick review of the 25 most recent complaints filed with the Grain Inspection, Packers and Stockyards Administration (GIPSA) under the Packer and Stockyards Act of 1921 (PSA) shows an overwhelming proportion of complaints revolve around payment issues. Late or incomplete payments, bad checks, and inadequate custodial account balances or bonds made up roughly 92 percent of the cited offenses. Many of the cited delinquent payments dated back a few years and were still outstanding at the time the complaints were filed.

“After Eastern Livestock went down, that was one of the big questions; ‘what can be done to prevent this from happening again?’” said Colin Woodall, vice president of government affairs at the National Cattlemen’s Beef Association (NCBA).

Given the issues with standard means of payment used in cattle auctions as illustrated in the Eastern Livestock scandal and the even recent complaints to GIPSA, groups like NCBA and the Livestock Marketing Association have been looking into new payment possibilities.

Woodall said one possibility was The Seam, a self-described “completely online neutral exchange” service which has thus far traded cotton, dairy and peanuts. The Seam’s Focused Market program—something which might work for cattle trades—connects authorized buyers and sellers of physical commodities, offers proof of delivery and payment services, and maintains easy-to-access online purchase documentation.

A representative from The Seam was present at the most recent NCBA conference in Denver at the end of July. He described to the Live Cattle Marketing committee what The Seam has been doing for cotton traders, which, among other things, includes a form of funds and payment verification. The benefit of the system is the speed at which all of this happens.

Woodall reported working with The Seam on how its processes could be used to help the beef industry is still in its early stages. There are no field tests of their systems for beef/cattle yet, but NCBA is working with them to teach them about the industry so the company can possibly tailor some thing to the needs of the industry.

When asked what other efforts might be taken regarding the payment issues of cattle auctions, Woodall spoke of concerns about GIPSA and what seems like a lack of oversight.

 

“In a lot of cases we feel GIPSA hasn’t been covering the bases.”

Despite this, he didn’t feel more regulation was necessary, just that the current requirements—primarily the PSA—are enforced and enforced in a timely manner. Speaking of the Act, Woodall concluded:

“It’s not perfect, but it’s been the gold standard for almost 100 years. We need the confidence that Congress will enforce what’s written.” — Kerry Halladay, WLJ Editor

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