In the past two months, there seems to be an uptick in violations of the Packers and Stockyards Act (P&S Act) for failing to pay, when due, the full amount for livestock. In fact, the U.S. Dept. of Agriculture’s Grain Inspection, Packers and Stockyards Administration (GIPSA) has issued ten press releases regarding such violations in that time period.
Arguably, the violation for failing to pay, when due, is the fruit hanging on the lowest limb of the GIPSA regulation tree. A violation can occur quickly when an operation is running close to the red, or even if there is a simple miscommunication at the bank.
The rule requires packers, market agencies, and dealers subject to the P&S Act deliver full payment to the livestock seller by the close of the next business day following the purchase and transfer of the livestock. Mailing the payment is allowed if the seller is not available at the place of transfer or agrees in writing prior to the sale.
So how can this happen? To give a simple example: An auction house sells 50 head of cattle to B. The auction house then buys 100 head of cattle from C. The auction house could be in violation if B’s check bounces thereby leaving the auction house without sufficient funds to pay C in time. Maintaining sufficient capital or proper bond amounts can become difficult if the buyer is moving a lot of livestock through several avenues or is working on thin margins.
Packers, market agencies and dealers can protect themselves from these violations through signed written agreements with the seller allowing alternative payment terms made prior to the purchase transaction. However, sellers may be unwilling to sign such agreements as they lose their right to the trust established protecting sellers from a buyer’s failure to pay.
Given the volatility of the market and speed in which livestock can change hands, we can expect GIPSA will continue the easy pickings of failure to pay when due violations.