SALE Act would give protection to auction markets, producers
October 25, 2017
The Packers and Stockyards Act has regulated auction markets, packers, and livestock dealers since 1921, but with today's fast-paced speed of commerce, it's become abundantly clear that updates must be made to better apply to current times.
To address this growing concern, Congressman Roger Marshall (R-KS) has introduced the Securing All Livestock Equitably (SALE) Act, HR 4058, which would amend the existing Packers and Stockyards Act to provide sellers of livestock with payment protection during dealer payment defaults.
In a recent press release, Congressman Marshall said, "Current law puts our livestock producers and markets in the precarious position of being cheated out of millions of dollars of cattle by unfairly giving creditors priority over cattle they purchased, but never paid for. This bill would assure that producers and markets are paid for cattle."
The SALE Act would add protection by creating a Dealer Statutory Trust that would give unpaid sellers of livestock first priority in livestock or, if the livestock have already been resold, the proceeds and receivables from those livestock.
"Dealers are in the business of buying and reselling livestock, often grouping them to meet volume and type needs of their customers," said Chelsea Good, JD, Livestock Marketing Association (LMA) vice president of government and industry affairs. "Unfortunately, we've seen a pattern of dealer defaults where markets and producers go unpaid. Under current law, a person selling to a dealer can be left unpaid and unable to reclaim livestock. Often times, a dealer's bank gets paid while the farmer or rancher who raised the livestock, or a market that sold the livestock on a small commission, does not. This is patently unfair."
The SALE Act is backed by several members of Congress who co-sponsored the legislation with Congressman Marshall, including Representatives David Rouzer (R-NC), Chairman of the House Agriculture Subcommittee on Livestock and Foreign Agriculture; Jim Costa (D-CA), Ranking Member of the House Agriculture Subcommittee on Livestock and Foreign Agriculture; Jodey Arrington (R-TX); Cheri Bustos (D-IL); James Comer (R-KY); Vicky Hartzler (R-MO); Steve King (R-IA); Frank Lucas (R-OK); Terri Sewell (D-AL); Jason Smith (R-MO); Darren Soto (D-FL); Glenn Thompson (R-PA); Ted Yoho (R-FL); and David Young (R-IA).
Recommended Stories For You
The SALE Act would enhance previous updates made to the Packers and Stockyards Act.
"Last year, HR 5883 passed, which updated the Packers and Stockyards Act in two ways," said Good. "First, it clarified that online and video auctions that sell on commission and handle producer's money are regulated by the law similar to fixed-facility auctions. Second, it clarified that the prompt payment requirement to pay by the close of the next business day could be met by an A.C.H. (automated clearing house) transfer or other modern, expeditious method, in addition to the existing opportunity to put a check in the mail by the close of the next business day. LMA believes these to be positive modernizations to the Packers and Stockyards Act. Providing better protection from defaults through the SALE Act would build upon these improvements to the law."
For Dwayne Mays, owner of Ogallala Livestock Auction Market in Ogallala, Neb., the SALE Act will provide an extra level of protection for auction owners and producers alike.
"I think this will give us the assurance that when we sell to dealers, if they were to default, we would be the first in line as the unpaid seller," said Mays. "In previous cases of defaults, I've only received 4 cents back on the dollar, not to mention my attorney fees and other expenses. This is a great bill, not only for auction owners, but producers, as well because if a producer sells to a dealer directly off his ranch, he would become the first in line as the unpaid seller in the case of a default."
Mays is thankful for the growing support in Washington, D.C., of the SALE Act, but he says we'll need more to champion for this update.
"We really need Congress' support on this," he said. "In this industry, we are pretty vulnerable, and I guess we always have been, but when you are operating on rules that were written in the 1920s, it's so far outdated that it doesn't offer auction markets, buyers and sellers enough protection for today's marketplace. It's very important to get these rules updated to ensure the longevity of livestock markets. I urge producers to reach out to their elected officials and let them know about this bill."
Frank Volmer, owner of the Winner Livestock Auction, agrees that the current laws and the existing Packer Statutory Trust, are quite outdated.
"There is such vague language for the current trust, and the law is antiquated," said Volmer. "The auction markets should have the first lien on the cattle sold automatically. We have paid the consignor the money for his calves, so it just makes sense to be first in line for payment. The current law says livestock must be paid for by the end of the next business day, but that's not always enforced. Some say if the check is in the mail by the next day, then that's okay. However, we pay for the cattle that day, so it's hard for the sale barn operators to cash flow when they have to wait for payments."
In South Dakota, Volmer worked for a decade to better enforce the next-day payment rules for livestock sold. Last year, he was able to work with the South Dakota Animal Industry Board to pass a resolution that would require all livestock to be paid for by the end of the next business day, either by check, wire or A.C.H.
"Since we've done that, our accounts receivable are null compared to what it used to be," said Volmer. "Not all barns are enforcing this rule because they are afraid of losing a buyer, but we haven't had any problems since we the resolution was passed. There is great risk in this business, and there will be a lot less barns if we don't change something."
LMA made nine stops in 2015, listening to the concerns of auction markets, buyers and sellers, with the intention of gathering practical information that would be helpful in developing improved policies to update the existing Packers and Stockyards Act. LMA believes the SALE Act would address industry concerns and update the laws to better apply to today's marketplace.
"Under the Packers & Stockyards Act, markets are required to maintain a custodial (trust) account and pay sellers for livestock promptly, even if the buyer does not pay the livestock market," said Good. "When a producer sells directly to dealers, the producer bears the risk of payment default.
Currently, these dealers are bonded, says Good, but the average bond claim garners less than 15 cents on the dollar. The addition of the priority in livestock and proceed/receivables from livestock until paid will add additional layer of protection.
"At the same time, the SALE Act would not significantly change the day-to-day dealings of buyers and sellers," added Good. "As long as a dealer is paying for livestock, money continues to move as it does today. The dealer trust would not require dealers to keep a separate account."