Eastern Livestock fails, producers pay the price
December 10, 2010
BIRMINGHAM, AL (DTN) – They were the best bunch of cattle he’d ever sold. Twenty weaned feeder steers, all trough-broke and vaccinated. Gary Bell unloaded the lot at 4:30 p.m., Nov. 2 into the pens at Edmonton Livestock. Twenty minutes later he had a check in his hands for a little more than $14,000. Shortly thereafter he found out the check was no good.
Bell is just one of some 250 family farmers who sold cattle that day at Eastern Livestock’s Edmonton, KY, buying station. It was just hours before the Indiana-based company went down in a financial mess that will take months, if not years, to clear up. So far, USDA says losses for unpaid cattle are in the neighborhood of $131 million. Eastern was the largest buyer of feeder cattle east of the Mississippi River, Bell said. Failure wasn’t something he or other ranchers in the small town of Edmonton even considered a possibility.
Bell’s analysis of what happened that day is more than that of a rancher trying to decipher the workings of liens and frozen assets. Bell has a cow-calf operation in Edmonton, but started out his career as an ag lender in 1973 and offers insight from a different perspective. He believes the folks around Metcalfe County who sold that day should not be lumped in with all unsecured creditors.
“I tend to believe that prior to the time we sold our cattle, Fifth Third Bank of Cincinnati possibly had already decided this was going to happen and may have even frozen Eastern’s accounts,” Bell said. “Because of that, I don’t believe those who sold at the Edmonton buying station that day should be lumped in with the general unsecured creditors. We did not extend credit to Eastern. They received immediate goods and we received immediate payment, albeit in the form of bad checks.” Bell adds he formed his opinions solely from examining public records and the timing of the returned checks.
The cattleman has been doing business with Eastern as long as the company has been in Edmonton and said he has never had a problem until now. Bell thinks there is a possibility he and the other farmers from this area are literally just collateral damage in a legal dispute between Fifth Third Bank and Eastern Livestock. He firmly believes on-site managers and operators of the Edmonton facility had no idea this was coming. Even after all that has happened, Bell is somewhat defensive of Eastern, saying, “I’m not even sure they saw it coming.”
When asked about legal action, Bell declined to comment, but said, “My frustration is not so much with Eastern or even Fifth Third Bank, as it is with the system. How was this allowed to happen? How can a bank end up with proceeds from our cattle, when we weren’t paid for them?”
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While many don’t want to speak publicly about their losses, Bell said he knows of people in the community who will face extreme financial hardship as a result of Eastern’s failure.
“I know of one boy who sold some calves that day to pay part of his college tuition. The checks he wrote to the university came back. There’s another who told me his tractor was going to be repossessed. There were kids who sold their first bottle-fed calves and lost the money that day. We don’t know yet if there will be any lost farms as a result of this, but I know a lot of folks will be struggling to pay their property taxes this year,” Bell said.
A big question the failure of Eastern has raised is why an entity with well over $1 billion in annual sales was only required to have a bond of $875,000. Bell is blunt in his opinion of the job USDA’s Grain Inspection, Packers & Stockyards Administration did.
“I think if they can’t do any better than this, they need to be disbanded. For GIPSA to tell us the receiver is going to pay secured creditors first and then divide up whatever is left and that we can apply for our prorated share … it’s not good enough. I had a discussion with reps from GIPSA, and when I asked them about follow-through to trace cattle and proceeds, they told me they didn’t have the personnel to handle it. I hope this proves to be incorrect.”
DTN/The Progressive Farmer requested an interview with GIPSA Administrator Dudley Butler but has not received a response. USDA officials have said that the case is being investigated as a criminal case.
Thomas Gibson, majority owner of Eastern Livestock, has not publicly addressed the failure or agreed to requests from reporters at DTN for an interview.
The Livestock Marketing Association stated on its Web site last week that Elizabeth Lynch, the receiver appointed by an Ohio judge, has been working with LMA on a proposal to see “what it will take to move these cattle back into commerce.” Lynch was appointed to handle all of Eastern’s business matters after Fifth Third Bank filed suit to freeze the company’s assets, claiming they had defaulted on a $32.5 million loan. The LMA has offered to facilitate movement of money and cattle affected by the frozen accounts and bounced checks.
The USDA has filed a complaint against Eastern Livestock Company and Thomas Gibson, citing they “willfully violated the Packers and Stockyards Act.” The complaint also says on June 17, 2010, Eastern was told to increase its surety bond to $1,150,000 (from $875,000) before continuing operations. Eastern did not obtain the increased bond, yet the complaint says it “continued to engage in the business of buying and selling livestock on its own account and as a market agency providing clearing services without maintaining an adequate bond or its equivalent.”
It’s unclear why Eastern was allowed to continue buying and selling for nearly five months without the increased bond.
As this snarled mess begins to be teased out in courts across the country, Kentucky’s Bell said he’s lost all confidence in the system. “The impact is tremendous. I don’t know that anyone will ever have the faith they once did. It is a shock. And all I know right now is my cattle are out there today, eating and gaining weight. I want them back, or I want the proceeds,” said Bell.
Asked about the possibility of low-interest loans from the government to help producers hurt by the failure, he says the whole idea infuriates him.
“I want the USDA to make us whole by following through and making sure we get paid for our cattle. I don’t want a loan. Farmers have got enough loans. I don’t want a grant. I just want to be paid for my cattle, and I think most farmers feel the same way.”