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Live-Cattle Marketing Committee

Committee discusses Eastern bankruptcy and responds.

by Troy Smith for Angus Productions Inc.

Back to the Angus Beef Bulletin EXTRA

DENVER, Colo. (Feb. 4, 2011) — The far-reaching consequences of Eastern Livestock Company’s recent bankruptcy dominated discussion during the National Cattlemen’s Beef Association (NCBA) Live-Cattle Marketing Committee meeting Friday, Feb. 4. Meetings for all NCBA policy committees, as well as joint (Policy Division and Federation Division) committees and subcommittees were conducted as part of the 2011 Cattle Industry Convention in Denver.

 

Live-Cattle Marketing Committee members discussed possible ways to prevent future situations like that of Eastern Livestock Co., which was considered one of the nation’s largest cattle brokerage companies, with operations in several states. Eastern filed bankruptcy in December 2010, after issuing bad checks, allegedly totaling nearly $130 million, for cattle purchases. Investigation revealed that Eastern, a company acting as dealer and order-buyer of feeder cattle, had begun issuing insufficient-fund checks for purchases of cattle during November.

 

According to allegations by its principle lender, Fifth Third Bank, Eastern Livestock Co. engaged in a sophisticated check-kiting scheme, involving the deposits and withdrawals into and out of accounts at Fifth Third Bank and other banks. Taking advantage of the “float” or delay in one bank’s notification to another, regarding insufficient funds, Eastern created the artificially high account balances on which it made withdrawals.

 

Committee members and guests discussed possible weaknesses in government oversight, banking rules and issues related to bonding and trust accounts, as they apply to livestock dealers and marketing agents. Arkansas cattlemen and marketing company owner John Queen said the committee “ought to step forward” in response, seek review of formulae used in issuing bonds, and push for improved oversight under the Packers & Stockyards Act.

 

The Committee did forward a directive, for consideration by NCBA membership, which would instruct NCBA staff to work with members of Congress and appropriate federal agencies to make low- or no-interest loans available to cattle producers, marketing agents, transportation firms and other service providers sustaining financial loss as a direct result of Eastern Livestock Co.’s failure.

 

The Committee also called for NCBA to work with relevant congressional committees to seek an oversight hearing into the USDA Grain Inspection, Packers & Stockyards Administration (GIPSA) procedures for auditing and bonding all cattle dealers and auction markets. Additionally, NCBA is directed to create a task force to further investigate consequences of Eastern’s bankruptcy.

 

In other action, the Live-Cattle Marketing Committee proposed a resolution addressing current cash index parameters for the Chicago Mercantile Exchange (CME) Feeder Cattle Contract. Due to an economic environment conducive to growing cattle on forage or roughage diets for as long as possible before placement in feedyards for finishing, the resolution supports removal of 650-pound (lb.) to 699-lb. steer cattle from calculation of CME Feeder Cattle Index. Additionally, the resolution seeks inclusion of 850-lb. to 899-lb. steers in the index calculation.

 

The Committee also supported renewal of existing NCBA policy that opposes any regulations or legislation that limits methods of marketing cattle, including value-based marketing systems and strategic alliances.