Big trouble in cattle country.

This is one of those obscure events that could be more significant than we realize.

Eastern Livestock, a major player in the cattle industry, is being  forced into bankruptcy and forced to stop doing business by government regulators due to perhaps as much as $123 million in unpaid sales for cattle.  This company is a major player in the business of getting
calves to ranches and then cattle from ranches to feedlots, handling pwards of 10-15% of US cattle business.

Given the news below, it looks like a lot of ranchers are not going to get paid. . . very sad, but I also wonder if this is a harbinger of things to come?  There’s been some considerable amount of comment elsewhere about the financial viability of the feedlot beef production model if grain/corn prices continue high.  In many cases, this money is owed to ranchers who sold their entire calf/feeder cattle production this year to the company.  So not getting a check will be a big problem.  Even if they do “eventually” get paid, they will get paid last — after the secured notes and lawsuits are settled.  How many of us would like waiting months or perhaps even years for our paycheck?

There’s a pretty informed rumor that the cause of the bad checks was that the FDIC forced their bank to call their notes.
http://www.agweb.com/blog/Out_to_Pasture_149/did_fdic_cause_eastern_livestock%E2%80%99s_problem/

Another aspect of the scandal is that the livestock company only had an $875,000 bond to cover $100 million in business.  The relevant department of the USDA — GIPSA — has been criticized for lax enforcement of the laws regarding bond coverage for cattle traders.  The purpose of the bond is to ensure that the cattle are paid for if the deal has trouble, it is a protection for ranchers and farmers.  But without a sufficient bond, there is no protection.

If so, it is one of those financial issues I have been worried about regarding the intersection of  the conventional ag industry and the US food system and the financial system, complicated as we go forward by the difficulties we face as peak oil brings us to the decline years, as economic irrationality roils the financial markets, and as climate instability supresses crop production.  Famine in the US can be caused by financial crises just as easily as an actual production crisis, indeed, it is more likely as a source of famine here at home than a production collapse, at least in the short term.

Finally, notice how the law is careful to protect the interests of the banks, while leaving the farmers and ranchers literally hanging out on a limb with zero protection from the goobermint of their interests as the producers of the wealth that is now in dispute.  Remember this the next time someone from the government shows up and says, “Hi, I’m here to help you.”

Among the many implications of this situation, it is one more proof that the financial and market system is rigged against those who do the actual work, and favors the phantom FIRE (Finance, Insurance, Real Estate) parasites, crooks, and thieves.

Begin USDA quote . . .

 USDA announces latest actions in the Eastern Livestock Company failure

GIPSA currently estimates that Eastern owes more than $130 million to 743 sellers in 30 states.

The U.S. Department of Agriculture’s Grain Inspection, Packers and  Stockyards Administration (GIPSA) on Friday Nov. 19, filed an administrative complaint charging Eastern Livestock Company, LLC, and Tommy P. Gibson of New Albany, Ind., with:

• failure to pay for livestock purchases;
• failure to pay timely for livestock purchases; and
• failure to maintain an adequate bond.

Eastern Livestock Company (Eastern) is one of the largest cattle  brokerage companies in the U.S., with operations in 11 states across the Mid-South, Midwest, and West.

As of Nov. 22, the agency has documented $81 million in returned checks and is onsite at Eastern’s headquarters assessing the situation, investigating possible violations of the Packers and Stockyards Act, and working to ensure that all available protections are afforded to producers.

Outline of events:

On Nov. 3, 2010, a livestock seller complained to GIPSA that a payment check received for livestock sold to Eastern had been returned due to insufficient funds.

On Nov. 4, 2010, GIPSA deployed investigators to Eastern’s headquarters to investigate the original and subsequent complaints of failure to pay for livestock. GIPSA also began deploying rapid response teams to markets nationwide that could be impacted by Eastern’s financial
failure. The agency also began issuing letters to unpaid sellers encouraging affected producers to submit bond claims. As of Nov. 17, 2010, GIPSA issued 743 letters.

On Nov. 9, 2010, USDA issued a news release, “Bond Information for Producers Who Sold Livestock to Eastern Livestock Company, LLC”,  explaining the situation and providing information on how to file bond claims under the Packers and Stockyards Act.

On Nov. 9, 2010, Fifth Third Bank filed a motion with the Hamilton County Court of Common Pleas in Ohio requesting issuance of a temporary restraining order and the appointment of a receiver. The court appointed Elizabeth M. Lynch, of Development Specialists Inc., of Cleveland, Ohio, as receiver to work on behalf of Eastern’s creditors, among which Fifth
Third Bank is the secured creditor. The court also granted a temporary restraining order enjoining Eastern’s access to and dissipation of its financial assets.

On Nov. 10, 2010, Capital Indemnity Corporation served notice on Eastern cancelling Eastern’s surety bond for $875,000 effective Dec. 30, 2010. The receiver will be working to ensure that the secured creditor is paid. After the secured creditor, the bank, is paid the unsecured creditors, including livestock sellers, will be paid out of remaining funds. The receiver is authorized to take immediate possession, control, management, and charge of Eastern Livestock’s accounting books and records of whatever nature and wherever located, in the possession of Eastern Livestock or any other person or entity, including all
information regarding the assets, liabilities, equity, income, and  expenses of Eastern Livestock.

Purchasers of livestock and others affected by this incident who are unsure to whom to make payment for livestock purchases need to carefully consider their options in light of the applicable state and federal laws. Unpaid sellers may contact GIPSA at 515-323-2579 for information on filing bond claims.

Posted by TSCRA on 11-22-10
source: USDA-GIPSA website