June 24, 2019
Mr. S. Brett Offutt
Chief Legal Officer/Policy Adviser
Packers and Stockyards Division - Fair Trade Practices Program
Agricultural Marketing Service
U.S. Department of Agriculture
1400 Independence Ave. SW
Washington, DC 20250
RE: AMS Feasibility Study on Livestock Dealer Statutory Trust, Document No. AMS-FTPP-19-0037, Federal Register, Vol. 84, No. 80, Thursday, April 25, 2019, page 17374
Dear Mr. Offutt:
The North Dakota Stockmen’s Association (NDSA) is a 90-year-old beef cattle trade organization representing approximately 3,000 cattle-ranching families in our state. Thank you for the opportunity to comment on the proposed Livestock Dealer Statutory Trust feasibility study. Our organization supports the proposed study.
Our members adopted a policy supporting the development of a livestock dealer trust at our annual convention in 2017. In our view, a dealer trust would help improve recovery for producers selling livestock when a dealer defaults. Having the ability to reclaim cattle and the related proceeds would improve these unfortunate situations for producers who raised the animals, but who are not paid, either because there is no check or the check comes back dishonored.
Buyers at livestock markets include producers, feeders, packers and dealers. Under the P&S Act, markets are required to maintain a custodial account and pay sellers for livestock promptly, even if the buyer does not pay the livestock market. When a producer sells directly to dealers, the producer bears the risk of payment default.
Dealers are in the business of buying and reselling livestock, often grouping them to meet volume and type needs of their customers. The P&S Act prompt payment rules allow dealers to take possession of livestock and pay for them later by placing a check in the mail the next day. With a slowing mail system, it often takes several days before the producer or market receives the check or finds out that the check is not coming. Unlike markets, dealers do not maintain a custodial account to guarantee payment.
If a dealer takes delivery of a seller’s livestock and fails to pay, not much can be done to recover livestock or the funds. That’s because the original seller typically has no legal ability to reclaim the livestock. If the dealer has resold the livestock to a good-faith purchaser, that second purchaser has clear title, even if the dealer has not paid for them. Plus, the dealer’s bank will have priority over the unpaid seller if the bank has a blanket security interest that includes livestock the dealer has or might acquire. The bank’s priority exists even if the dealer hasn’t paid for the livestock.
In our organization’s view, a dealer trust would improve recovery in dealer defaults and the study, which was authorized in the 2018 Farm Bill, would help explore how this could and should be developed and implemented to provide an extra layer of protection for our livestock producers.
Thank you for your consideration.
Dan Rorvig, President
North Dakota Stockmen’s Association