Report Pursuant to Section 12103 of the 

Agriculture Improvement Act of 2018: 

Study to Determine the Feasibility of Establishing 

a Livestock Dealer Statutory Trust 

PACKERS AND STOCKYARDS DIVISION 

AGRICULTURAL MARKETING SERVICE 

UNITED STATES DEPARTMENT OF AGRICULTURE 

1 
TABLE OF CONTENTS 

I. Commonly Used Terms and Abbreviations ........................... .. ......................... .................... ...... ..... 3 

II. Index of Tables and Figures ............................... ............ .. ... ........................ ............ ......................... 4 

III. Executive Summary ......................................................................................................................... 5 

IV. Introduction and Background Information.................... ............... ..................................................... 8 

V. Elements of Feasibility Study ....... .............................. .. .............. .. ............................... .. ............. ... 24 

VI. Circumstances Unique to Livestock Dealers .. ............... .. .................................... ........................... 25 

VII. Effectiveness of Statutory Trusts in Other Segments of Agriculture; Independent Trustee ...... ... .4 1 

VIII. Seller Recovery in The Event of a Livestock Dealer Payment Default ......................................... 66 

IX. Preferential Transfers in Bankruptcy ......... .. ... ... ... ... ...................................... .... ....... .. .................. 75 

X. Exempting Low Volume Dealers from the Trust.. .. ............... .......... ................................... .. ......... 80 

XI. Buyer and Seller Behavior in Markets for Livestock .. ................ ......................... .................. .. ...... 86 

XII. Credit Availability ........................................................................................... .. ............................. 90 

XIII. Electronic Funds Transfer for Livestock Purchases ...... ................................. ................. .. .. ......... .. 95 

XIV. Glossary of Terms .................................................................................................. .. ..... .. ............... 99 

XV. Appendices (i ncluding detailed comment summaries) ......................................................... ........ I06 

a. Circumstances Unique to Livestock Dealers .................................................................... .. ...... .... I 06 

b. Effectiveness of Statutory Trusts in Other Segments of Agriculture ...... ........................... .......... 107 

c. Seller Recovery in The Event of a Livestock Dealer Payment Default ....................................... 11 7 

d. Preferential Transfers in Bankruptcy ......... ......... .. .. ....... .. ...... ................................ ..... ................. 119 

e. Exempting Low Volume Dealers from the Trust ..................................................... .......... .. ........ 120 

f. Buyer and Seller Behavior in Markets for Livestock .. ....... ........ .... ......... ....................... .. ............ 123 

g. Credit Availability ........... .................... ........... .. ............... .. ...... ........................ .................. ........... 131 

h. Electronic Funds Transfer for Livestock Purchases ................. ..... .. .............................. .. .......... .. .141 

1. Section 12103, 20 18 Farm Bill .................................................. .. ................................................ 143 

J. House Bill 4058; SALE Act of 201 7.................... .. .... .. .............. ................................... .. ............ .144 

k. Senate Bill 3140; SALE Act of 2018 ............................. ........................... ....................... .. .......... 147 

I. 2000 Statutory Trust Legislation ...................................... .. ........ ......................... ... ..... ............. .... 153 

m. 1996 Statutory Trust Legislation ....... .. .. ..................... ...... ...................................... .. ......... ........... 159 

2 
I. Commonly Used Terms and Abbreviations 

2018 Farm Bill 

Act 

Agency 

AMS 

BOC 

EFT 

FTC 

P&S 

PACA 

PSD 

SALE Act 

Secretary 

soc 

Study Period 

TA/LOC 

TFA 

ucc 

USDA 

Agricultural Improvement Act of 2018 

Packers and Stockyards Act of 1921 

Agricultural Marketing Service 

Agricultural Marketing Service 

Market Agency Buying on Commission 

Electronic Funds Transfer 

Feder~l Trade Commission 

Packers and Stockyards 

Perishable Agricultural Commodities Act 

Packers and Stockyards Division 

Securing All Livestock Equitably Act of2017 

United States Secretary of Agriculture 

Market Agency Selling on Commission 

October 1, 2013-June 30, 2019 

Trust Agreement and Letter of Credit 

Trust Fund Agreement 

Uniform Commercial Code 

United States Department of Agriculture 

3 
II. Index of Tables and Figures 

Table 1. Active Dealers ............................ ....................................... .. .. ................................................... ..... 22 

Figure 1. Livestock Purchases by Dealers ......... ....................................... ................................................... ..........26 

Figure 2. Livestock Purchases by Packers ........................... ............ .................................... ................................. .28 

Table 2. Dealer Purchases and BOC Purchases {2017 or 2018 Annual Reports) .. .......................... ......... ... 31 

Table 3. Dealers as Clearees (2017/2018 Annual Reports) ........................................................................ 33 

Table 4. Active Dealers Filing by Species ... .. ........ ............. ..................... .......... ....................................... ....34 

Table 5. Dealer Size based on 2017/2018 Annual Reports - by Own-Account Dealer Volume ................. 35 

Table 6. Dealer Size based on 2017/2018 Annual Reports - by Dealer Plus BOC Volume ........................ 36 

Table 7. SOC Dealer Activity .... ................................................. .................. ........................................... ..... 37 

Table 8. Number of Entities Subject to a Dealer statutory trust under Differing Scenarios ...................... 39 

Table 9. Packer Trust and Bond Claims.................... ...................... ............ ........ .. .. .................................... 49 

Table 10. Trust and Bond Claim Recoveries ............ .............. .. .. .. .. ............................ .................. ........... ..... 52 

Table 11. Recovery from Packer Trusts and Packer Bonds ......................................................................... 53 

Table 12. Total Recoveries (Bond, Trust and Other) from Packer Trust and Bond Claims Combined ...... 54 

Table 13. Potential Recoveries from Packer Bonds ........................... ..... ........ .. .................. .. .......................57 

Table 14. Poultry Trust Claims; October 1, 2013 - June 30, 2019 ............................. ...... ........................ ... 58 

Table 15. Claims on Dealer Bond and Recoveries .. ....................................... ........................... ........ ..... .....70 

Table 16. Potential Recovery from a Dealer Statutory Trust ....... .. .............................. .......................... .. ... 74 

Table 17. Recoveries by Dealer Bond Amount ............................ .. ................. ........... .. ..... ................... .. ..... 83 

Figure 3. Seller Recovery by Dealer Bond Amount ... ............. ..................................................................... 84 

4 
III. Executive Summary 

In the 2018 Farm Bill, Congress instructed USDA to examine the feasibility ofestablishing 

a livestock dealer statutory trust. USDA reviewed internal and industry data as well as public input 

to provide this report to Congress. 

To carry out this study, the Agricultural Marketing Service's (AMS) Packers and 

Stockyards Division (PSD) examined the payment history of livestock dealers, market agencies, 

packers, and live poultry dealers during the period of October 1, 2013 , to June 30, 2019. The 

payment history analysis used dealer and market agency bond claim data, packer bond and trust 

claim data, and live poultry dealer trust claim data. Trust beneficiaries under the Perishable 

Agricultural Commodities Act (PACA) trust may file actions in U.S. District Court and need not 

appeal to USDA to enforce their trust rights. Thus, AMS does not have complete P ACA payment 

history data for analysis here. 

PSD also sought public input on eight key issues raised in the 2018 Farm Bill. A Federal 

Register notice posed a series of questions aimed at obtaining public views and experiences in 

dealing with dealer payment issues. The 60-day comment period yielded 1,597 comments, nearly 

all ofwhich expressed an opinion on whether a dealer statutory trust should be created. Summaries 

of, and highlights from, public comments are provided in greater detail in this report' s appendices. 

Summary ofFindings 

Based on its analysis of industry data, public input, and experience with the livestock 

industry, PSD finds that it would be feasible to implement a livestock dealer statutory trust. A 

statutory trust covering dealers' livestock purchases could be established in much the same manner 

as the statutory trusts covering meat packers, live poultry dealers, and produce buyers. The 

following respond to Congress' s request for specific information. 

5 
1. Livestock dealers may perform multiple commercial functions. Depending on their 

various roles, dealers might not carry their own bonds, might not take possession of 

livestock they purchase, and might not maintain adequate assets to cover defaults, thus 

jeopardizing the financial welfare of sellers with whom they do business. A dealer statutory 

trust could improve sellers' chances of obtaining full recoveries ifit took into account each 

of the unique circumstances under which livestock dealers operate and the value of the 

livestock sales they manage. 

2. Statutory trusts in other segments of agriculture are effective in improving financial 

recoveries for unpaid sellers of agricultural products. Similar results could be expected 

under a livestock dealer statutory trust. Authorizing the Secretary to appoint an independent 

trustee could improve the trust claim and payout process, but payment of trustee fees may 

reduce funds available for recoveries to livestock sellers. 

3. Establishment of a livestock dealer statutory trust could improve livestock seller 

recovery in the event of a dealer default. Total recoveries under a statutory trust would 

likely be higher than what is achievable with only bond payouts. In cases of bankruptcy, 

livestock sellers would realize improved recovery compared to their potential recovery as 

unsecured creditors. 

4. Under bankruptcy law, a livestock seller may offer valid legal defenses against trustee 

claims of preferential transfer. However, mounting those defenses can be costly to sellers 

and offset the potential benefits of preserving livestock payment funds. A livestock dealer 

statutory trust could improve conditions for livestock sellers as to preferential transfers in 

bankruptcy. Under a trust, livestock purchase payments made to sellers within 90 days 

6 
before a dealer files bankruptcy would not be considered preferential transfers and could 

not be reclaimed from sellers. 

5. A de minimis annual purchase threshold of $500,000 exempting smaller dealers from a 

statutory trust could exclude a significant percentage of dealers, offering better protection 

only to those sellers who do business with larger livestock dealers. 

6. Establishment of a livestock dealer statutory trust would likely have little effect on buyer 

and seller behavior in livestock markets. In general, commerce would continue as usual. 

Livestock sellers would enjoy a greater chance of financial recovery in the case of a dealer 

default. 

7. Implementation of a livestock dealer statutory trust would be unlikely to significantly 

impact credit availability or lender behavior. 

8. Industry-wide adoption of EFT payments for livestock purchases would significantly 

change the way the industry functions. To date, relatively few entities - predominantly the 

larger ones - have adopted that payment method. Making EFT payments mandatory under 

the Act is generally opposed by the industry. If adopted industry-wide, EFT payments 

would likely improve on-time payments and diminish the incidence of dishonored checks 

due to non-sufficient funds. However, an EFT payment requirement provides a seller little 

payment protection if the dealer takes possession of the livestock, but does not have 

sufficient funds to cover the purchase price. 

9. The cost to the government to administer and enforce a livestock dealer statutory trust 

is estimated at $600,000 annually. This estimate recognizes that PSD already regularly 

responds to bond claims and other claims regarding nonpayment. Administering dealer 

statutory trust claims would require additional resources. 

7 
IV. Introduction and Background Information 

As mandated by the 2018 Farm Bill, this study addresses eight key issues. Issues were 

studied using a combination oftechniques described in greater detail throughout the report. Where 

practicable under the time constraints of this study, data obtained from a broad-based population 

of industries and regulated entities through annual reporting requirements under the Packers and 

Stockyards Act, 1921 (P&S Act) regulations were analyzed empirically. Where we do not readily 

have data to analyze, the study focuses more on evaluation and analysis of public comments. 

This report is organized to provide the reader with an introduction that describes the 

statutory mandate requiring the study. The report then provides a historical context for the study, 

including previous legislative proposals that would have established a livestock dealer statutory 

trust, and also highlights several recent industry occurrences that might have been impacted by a 

dealer statutory trust, if one had been in effect at the time of each occurrence. 

For each of the study components, the report provides narrative sections offering 

additional background information, the PSD data analysis where available, a brief summary of 

public comments on the issue, and PSD's conclusion. Appendices at the end of the report include 

detailed comment summaries and several illustrative comments on each issue, as well as legislative 

documents that help provide context for this study. 

Statutory Mandate. Section 12103 of the Agricultural Improvement Act of 2018 1

, 

commonly known as the 2018 Farm Bill, charged the Secretary of Agriculture with conducting a 

study to determine the feasibility of establishing a livestock dealer statutory trust. Section 12103 

requires that the study: 

1 Public Law 115-334 (Dec. 20, 2018). 

8 
(1) Analyze how the establishment of a livestock dealer statutory trust would affect buyer 

and seller behavior in markets for livestock (as defined in section 2(a) of the Packers and 

Stockyards Act, 1921 (7 U.S.C. 182)); 

(2) Examine how the establishment of a livestock dealer statutory trust would affect seller 

recovery in the event of a livestock dealer payment default; 

(3) Consider what potential effects a livestock dealer statutory trust would have on credit 

availability, including impacts on lenders and lending behavior and other industry participants; 

(4) Examine unique circumstances common to livestock dealers and how those 

circumstances could impact the functionality of a livestock dealer statutory trust; 

(5) Study the feasibility of the industry-wide adoption of electronic funds transfer or 

another expeditious method of payment to provide sellers of livestock protection from 

nonsufficient funds payments; 

(6) Assess the effectiveness of statutory trusts in other segments of agriculture, whether 

similar effects could be experienced under a livestock dealer statutory trust, and whether 

authorizing the Secretary to appoint an independent trustee under the livestock dealer statutory 

trust would improve seller recovery; 

(7) Consider the effects of exempting dealers with average annual purchases under a de 

minimis threshold from being subject to the livestock dealer statutory trust; and 

(8) Analyze how the establishment of a livestock dealer statutory trust would affect the 

treatment of sellers of livestock as it relates to preferential transfer in bankruptcy. 

Context for this Study. A bill titled the Securing All Livestock Equitably Act of 20172 

(SALE Act) was introduced in the U.S. House of Representatives in October 2017. A related bill, 

2 H.R.4058, 115th Congress (2017-2018). 

9 
also titled the SALE Act, was introduced in the Senate on June 26, 2018.3 These bills proposed to 

amend the Packers and Stockyards Act, 1921 ,

4 by creating a livestock dealer statutory trust. The 

two SALE Act bills' proposed dealer statutory trusts were modeled after the existing livestock 

packer statutory trust, enacted in 1976.5 The bills would have required all livestock purchased by 

a livestock dealer in cash sales, and all receivables or proceeds from such livestock, to be held by 

the dealer in trust until all unpaid cash sellers of livestock have been paid. The House version 

included a provision not found in the current packer statutory trust that would require the dealer, 

upon receiving notice of a trust claim, to give notice to "all persons who have recorded a security 

interest in, or lien on, the livestock held in such trust." The 2017 House version would have applied 

only to those dealers with average annual livestock purchases of more than $500,000. 

The 2018 Senate version included several variations from the 2017 House version. In 

particular, it would have provided an option for the parties to waive the dealer statutory trust and 

would have exempted those livestock dealers whose average annual livestock purchases are less 

than $250,000. It also provided that ifthe dealer failed to perform its duties as trustee, the Secretary 

would be authorized to appoint an independent trustee and preserve trust assets. 

The final version of the 2018 Farm Bill, enacted on December 20, 2018, did not include 

the SALE Act, but instead directed the Secretary to conduct a study on the feasibility of 

implementing a livestock dealer statutory trust. 

The 201 7 and 2018 bills proposing a livestock dealer statutory trust were not the fust such 

proposals. In April 1996, legislation was introduced in the Senate that would have created a dealer 

statutory trust. 6 The 1996 bill closely mirrored the existing packer statutory trust and was similar 

3 S. 3140, 115th Congress (2017-2018). 4 7 U.S.C. 181 , et seq. 5 7 U.S.C. 196. 

6 S.1707, April 25, 1996. 

10 
to both the 2017 and 2018 SALE Acts. The most significant difference between the 1996 bill and 

other proposals was the scope of the statutory trust. The 1996 bill would have created a statutory 

trust covering purchases by both livestock dealers and market agencies buying livestock on 

commission. The 1996 bill would have exempted dealers with average annual livestock purchases 

ofless than $250,000. 

In 2000, a bill titled "Statutory Trust for the Protection of Sellers of Livestock to Market 

Agencies and Livestock Dealers" would have amended the P&S Act by creating a dealer statutory 

trust. 7 The 2000 bill also addressed the scope of the statutory trust's coverage. The bill expressly 

excluded livestock purchases for feeding operations, stating that "purchases by a dealer of 

livestock for its own account for feeding in a feedlot or on pasture shall not be considered dealer 

transactions for the purposes of this section." Like the 1996 bill, the 2000 bill also would have 

exempted dealers whose annual livestock purchases were less than $250,000. 

The SALE Act of 2018 was introduced in the aftermath of the largest livestock dealer 

failure in U.S. history. In November 2010, hundreds of checks issued for livestock purchases made 

by livestock dealer Eastern Livestock Company, LLC (Eastern), were dishonored. Livestock 

sellers started filing claims on Eastern's bond on November 4, 2010. Ultimately, Eastern's demise 

would result in 375 claims of nonpayment from livestock sellers across 26 states. Eastern 

maintained an $875,000 bond to secure its livestock purchases. Approximately $37 million in bond 

claims were filed. Of that amount, just over $17 million in claims were deemed valid. Just under 

$750,000 was paid to livestock sellers from Eastern' s bond, with the remaining funds used to 

compensate the bond trustee. Unpaid sellers with valid claims received a pro-rata distribution of 

bond proceeds equal to approximately 4.37% of their claims. 

7 S. 2744, June 15, 2000. 

11 
Eastern filed for bankruptcy protection in 2010. Bankruptcy records show that Eastern had 

over $30 million in accounts receivable, $2 million in undelivered cattle contract deposits, over 

$35 million in inventory, and $7 million in cash. These assets of more than $74 million could have 

easily paid all of the unpaid livestock sellers' claims. 

However, under bankruptcy laws, the livestock sellers were in a class of unsecured 

creditors. Secured creditors had priority over unsecured creditors as to those assets. In addition, 

the Eastern bankruptcy case included nearly $850 million in payments made to creditors within 

the 90 days prior to the bankruptcy filing. Payments within 90 days of filing may be considered 

"preferential" and can be recovered from creditors by the bankruptcy trustee. The trustee instituted 

numerous actions in the bankruptcy court to recover preferential payments made by Eastern to 

livestock sellers. 

Approach to this Study. This study was completed by AMS personnel, primarily 

employees of PSD, which administers the P&S Act for USDA. AMS published a notice in the 

Federal Register 8 to solicit industry views on the various points to be covered by the study. AMS 

staff considered that input, utilized data available from PSD records, conducted additional research 

and literature reviews, and spoke with a limited number of other professionals to fill in certain 

gaps in the data. 

AMS staff examined PSD data covering fiscal years 2014 through 20189 and the current 

fiscal year from October 1, 2018, to June 30, 2019. PSD data includes numbers of dealers, market 

8 The Federal Register is the official daily journal of the Federal government. It is published every business day by 

the National Archives and Records Administration (NARA). It contains Federal agency regulations, Proposed Rules 

and Notices of interest to the public, Executive Orders, Proclamations, and other Presidential documents. The April 

25, 2019, Federal Register notice regarding the Feasibility Study on Livestock Dealer Statutory Trust can be 

accessed at https://www.federalregister.gov/documents/2019/04/25/2019-08350/feasibility-study-on-livestockd ea I er-statutory-trust. 9 Data were examined based on the fiscal year used by the federal government. The government's fiscal year begins 

on October 1 and ends on September 30. Data examined for this study covers the dates October 1, 2013 through 

September 30, 2018, and October I, 2018 through June 30, 2019. 

12 
agencies, packers, and live poultry dealers operating subject to the P&S Act. The data also provides 

financial information including bond amounts, purchase volume, payment defaults, bond claims, 

and trust claims where applicable. Staff also conducted literature reviews and researched 

legislative and legal histories of the packer, poultry, and PACA trusts. Details regarding the 

Eastern Livestock Company dealer failure, which occurred outside the date range identified for 

this study, were found to be relevant to the issue of a dealer trust and are addressed by this study 

using agency records, bankruptcy court records, and publicly available news and journal articles. 

Trust Background. Several "statutory trusts" have been enacted in the agricultural sector. 

These include a livestock trust applicable to meat packers, 

10 a poultry trust applicable to live 

poultry dealers, 

11 and the P ACA trust applicable to produce buyers.12 These trusts were each 

created as amendments to existing federal laws following financial crises in the industry in which 

the sellers of agricultural commodities lost significant amounts of money. 

Statutory trust laws work by providing that certain assets of a buyer are held in trust for the 

benefit of unpaid sellers. In practical application in the livestock industry, for example, the packer 

statutory trust for livestock allows the farmer to be paid in full for the livestock he has sold and 

delivered to the packer before the bank who has loaned the packer money recovers its investment. 

The packer trust provisions of the P&S Act were passed in 1976 in response to the 

bankruptcy of American Beef Packers and the attending harm to cattlemen who had delivered 

cattle to American Beef Packers just prior to the bankruptcy filing. As the court in In re Gotham 

Provision Co, Inc ., said: 

10 7 U.S.C. 196. Applicable to meat packers that purchase more than $500,000 of livestock annually. The livestock 

statutory trust will be referenced as the "packer statutory trust" throughout this report. 11 7 U.S.C. 197. Applicable to live poultry dealers that obtain by purchase in cash sales or by poultry growing 

arrangement more than $100,000 of poultry annually. 12 7 U.S.C. 499e, known t~oughout the industry as the PACA trust. 

13 
It is clear that the purpose of the 1976 amendments to the Packers and Stockyards 

Act of 1921 was to provide some future protection for livestock sellers against the 

type of serious financial loss that cattlemen experienced when some major meat 

packers went bankrupt in the early 1970's.Of principal concern to Congress was the 

bankruptcy of American Beef Packers in 1975, at the time one of the largest meat 

packers in the country. That bankruptcy affected many farmers throughout the 

country who had delivered their entire year's output of cattle to American Beef 

Packers and did not receive payment. (In re Gotham Provision Co. Inc. , 669 F. 2d 

1000 (1982), 1008) 

The Gotham court quoted the Senate Agricultural and Forestry Committee report 

concerning the amendments: 

Under present law, a packer is able to offer as security for a loan the livestock, meat, 

meat food products, or receivables or proceeds therefrom, which he has not paid 

for. The producer, who was responsible for raising, feeding, and caring for the 

livestock is left unpaid, while secured creditors reap the reward of his labors .... 

(In re Gotham Provision Co. Inc. , 669 F. 2d 1000 (1982), 1008) 

The trusts protect sellers by requiring buyers to hold inventories and proceeds received 

from the sale ofagricultural commodities in trust for the benefit ofunpaid sellers. In cases in which 

the buyer is in bankruptcy, the buyer's inventory and proceeds are viewed as trust assets and are 

not included in the bankruptcy estate. Unpaid sellers have priority over even secured creditors as 

to those assets. 

The statutory trusts do not require buyers to designate a trust account. The trust is a nonsegregated "floating trust" made up of all of a firm's commodity-related liquid assets, under which 

there may be a commingling of trust assets. Under this provision, there is no need to identify 

specific trust assets through each step of the accrual and disposal process. Since commingling is 

contemplated, all trust assets are subject to the claims of unpaid sellers and agents to the extent of 

the amount owed them. As each supplier gives ownership, possession, or control of agricultural 

commodities to a buyer, and preserves their trust rights, that supplier will automatically become a 

14 
participant in the trust. Trust participants remain trust beneficiaries until they have been paid in 

full. 

The trusts protect certain livestock sellers and poultry growers and sellers by making their 

rights to specific assets of the packer or live poultry dealer legally superior to the interest of any 

secured lenders to whom the packer or live poultry dealer offered those assets as collateral for 

loans. Section 206 of the P&S Act authorizes a statutory trust for a packer, whereas Section 207 

authorizes a statutory trust for a live poultry dealer. 

The trust is created when the commodity is delivered, but not paid for by the buyer. So 

long as the buyer has not paid for the commodity and there are amounts of the specified assets 

available, the trust exists. A trust is triggered when a livestock seller or poultry grower or seller 

sends notice in writing to the packer or the livestock poultry dealer and to PSD that a packer or 

live poultry dealer has failed to pay for livestock or for poultry. The seller has thirty (30) calendar 

days after payment was due, or within fifteen ( 15) business days after the seller has received notice 

that the payment instrument promptly presented for payment has been dishonored, to file on the 

packer or live poultry dealer's trust. 

Trust assets of a packer consist of all livestock purchased by the packer in cash sales and 

all inventories of, or receivables or proceeds from, meat, meat food products, or livestock products 

derived therefrom. Trust assets must be held in trust for the benefit of all unpaid cash sellers of 

such livestock until such unpaid sellers have received full payment. Similarly, trust assets of a live 

poultry dealer consist ofall poultry obtained by the live poultry dealer through cash sales or poultry 

growing arrangements, and all inventories of, or receivables or proceeds from, the poultry or 

poultry products derived therefrom. The P ACA trust is comprised of the perishable agricultural 

commodities purchased from the suppliers, all inventories of food or other products derived from 

15 
· the perishable agricultural commodities, and receivables or proceeds from the sale of the 

commodities or products. 

A district court of the United States, or a bankruptcy court if the packer or live poultry 

dealer is in bankruptcy, can order a packer or live poultry dealer to hold specific assets in trust for 

the benefit of unpaid livestock sellers or poultry growers or sellers; however, a written complaint 

must be filed with the court. If the seller or grower does not petition the court, the court may order 

that the assets be distributed to other unpaid cash sellers who did file a petition. 

The language of the packer trust sets forth certain requirements for establishing a right 

under the statutory trust. First, it exempts packers whose annual livestock purchases total $500,000 

or less. Second, it requires unpaid sellers to file claims on the trust within 30 days of the final date 

for making full payment under section 409. Third, unpaid sellers are not considered to have been 

paid ifthey receive a payment instrument that is dishonored; however, such sellers must file claims 

on the trust within 15 business days after receiving notice that the payment instrument was 

dishonored. Finally, the trust provision instructs that the trust is preserved by giving written notice 

to the packer and by filing notice with the Secretary. 

The language of the poultry statutory trust sets forth certain other requirements for 

establishing a statutory trust. First, it exempts live poultry dealers that do not have average annual 

sales of live poultry, or average annual value of live poultry obtained by purchase or by poultry 

growing arrangement, in excess of $100,000. Second, it requires unpaid sellers to file claims on 

the trust within thirty days of the final date for making full payment under section 410. 

13 Third, 

unpaid sellers are not considered to have been paid if they receive a payment instrument that is 

dishonored; 14 however, such sellers must file claims on the trust within fifteen business days after 

13 7 U.S.C. 197(b) 14 7 U.S.C. I 97(c). 

16 
receiving notice that the payment instrument was dishonored. Finally, the trust provision instructs 

that the trust is preserved by giving written notice to the live poultry dealer and by filing notice 

with the Secretary. 15 

Under the P ACA trust, unpaid sellers must give written notice of their intent to preserve 

the trust within thirty calendar days after payment must be made or they lose the benefits of the 

trust. 16 In a provision unique to P ACA, licensees are able to use billing or invoice statements to 

give notice of their intent to preserve the trust. In such cases, the bill or invoice must include on 

its face the following: "The perishable agricultural commodities listed on this invoice are sold 

subject to the statutory trust authorized by section 5( c) ofthe Perishable Agricultural Commodities 

Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these 

commodities, all inventories of food or other products derived from these commodities, and any 

receivables or proceeds from the sale of these commodities until full payment is received." 17 

Enforcement of payment of a valid packer trust clam has proven difficult in cases where 

the packer has continued operation subsequent to the filing of trust claims. The packer is trustee 

of the packer trust, and as such, has conflicting interests. On the one hand, the packer has a natural 

desire to use any available funds to continue operations. On the other hand, the law is clear that 

the packer has the duty to use available funds to pay the livestock seller. Enforcement of the 

packer trust provisions is typically best realized when the packer has ceased operations and filed 

for protection under provisions of the bankruptcy code. While the packer trust is not a part of the 

bankruptcy estate, the packer statutory trust is consistently recognized by bankruptcy courts, and 

trust claimants are commonly paid significantly sooner than the other creditors in bankruptcy. 

15 7U.S.C.197(b). 16 7 U.S .C. 499e(c)(3). 17 7 U.S.C. 499e(c)(4). 

17 
Packers and Stockyards Act, 1921. The P&S Act was enacted in 1921 following the 

release in 1918 and 1919 of the Report ofthe Federal Trade Commission on the Meat Packing 

Industry. For years prior to the Act's passage, the largest meatpacking companies had been charged 

with conspiring to control the purchases of livestock, the preparation of meat and meat food 

products, and their distribution throughout the country and abroad. In 191 7, President Wilson 

directed the Federal Trade Commission (FTC) to investigate the facts relating to the meatpacking 

industry. The FTC concluded that the "Big Five" (Swift, Armour, Cudahy, Wilson, and Morris) 

controlled the market in which they bought their supplies and the market in which they sold their 

products. The report pointed out that the monopolistic position of the "Big Five" was based 

primarily upon their ownership or control of stockyards and essential facilities for the distribution 

of perishable foods, and that control of stockyards carried with it dominance over commission 

firms, dealers, cattle-loan banks, trade publications, etc. The FTC reported packers were 

manipulating markets, restricting flow of foods, controlling the price of dressed meat, defrauding 

producers and consumers of food, and crushing competition. 

On August 15, 1921 , Congress passed the P&S Act, and it became effective one month 

later, on September 15, 1921. The P&S Act's stated purpose at the time it was passed was to 

"regulate interstate and foreign commerce in livestock, live-stock product, dairy products, poultry, 

poultry products, and eggs, and for other purposes." It prohibited packers from engaging in unfair 

and deceptive practices, giving undue preferences to persons or localities, apportioning supply 

among packers in restraining of commerce, manipulating prices, creating a monopoly, or 

conspiring to aid in unlawful acts. 

18 
The P&S Act also made stockyards 18 quasi-public utilities and required yard officers, 

agents, and employees to register with the government. Stockyards were forbidden from dealing 

in the livestock they handled and were required to maintain accurate weights and measures and 

pay shippers promptly. 

The P&S Act has been amended numerous times smce 1921, most notably in 1958, 

expanding jurisdiction over stockyards; 19 in 1976, adding significant financial protections for 

livestock sellers;20 in 1987, adding financial protection for poultry growers;21 and in 2002, 

expanding jurisdiction to include swine contractors.22 

Livestock Dealer Background. Section 301(d) of the Act defines a "dealer" as "any 

person, not a market agency, engaged in the business ofbuying or selling in commerce23 livestock, 

either on his own account or as the employee or agent of the vendor or purchaser. "

24 Under the 

Act, a person who buys or sells livestock in commerce on his or her own account or for another 

person is a dealer, unless the person charges a commission, in which case he or she is a market 

agency. 25 A "market agency" is defined as meaning "any person engaged in the business of (1) 

buying or selling in commerce livestock on a commission basis or (2) furnishing stockyards 

services. "26 

18 Initially, the P&S Act applied only to stockyards with more than 20,000 ft:2 of pen space. In 1958, Congress 

amended the Act to remove that limitation. As a result, all livestock auction markets, large and small, are under the 

Act's jurisdiction. 19 72 Stat. 944, Pub. L. 85-791 (September 2, 1958). 20 90 Stat. 1249, Pub. L. 94-410 (September 13, 1976). 21 101 Stat. 917, Pub. L. 100-1 73 (November 23, 1987). 22 116 Stat. 134, Pub. L. 107-171 (May 13, 2002). 23 The Act defines "commerce" as "commerce between any State, Territory, or possession, or the District of 

Columbia, and any place outside thereof; or between points within the same State, Territory, or possession, or the 

District of Columbia, but through any place outside thereof; or within any Territory or possession, or the District of 

Columbia." 7 U.S.C. § l 82(a)(l l) 24 7 U.S.C. § 20l(d). 25 See U.S. v. Haun, 124 F.3d 745 (6th Cir., 1997). 26 7 U.S.C. § 20l(c). 

19 
Livestock dealers have certain obligations under the Act. Section 303 of the Act, in 

conjunction with applicable regulations, requires each person operating as a dealer to register with 

the Secretary of Agriculture.27 Dealers who do not register may be fined up to $1,913, plus up to 

$96 for each day the unlawful operations continue.28 USDA regulations also require dealers and 

market agencies to post a reasonable bond to secure their financial obligations.29 

PSD maintains a record of all dealers that are currently, or were previously, registered at 

any time during the period covered by the study. Available information includes dealer 

applications for registration, bond forms, and annual reports that dealers are required to file with 

PSD.30 Annual reports are filed, using a USDA form31 according to the reporting entity's fiscal 

year. Most filers report on a calendar year basis, while some use differing fiscal years. Reports 

must be filed with PSD by April 15 for calendar year filers, or within 90 days after the end of the 

filer's fiscal year. 

The annual report form requires each entity to report separately and by species its 

"Livestock Dealer Purchases" and "Livestock Bought on Commission," in both number of head 

and dollar volume. The report form also requires all dealers and market agencies buying on 

commission (BOC) with annual livestock purchases of over $2.6 million to provide additional 

27 7 U.S.C. § 203 ; see 9 C.F.R. § 201.l0(a) (requiring every person operating or desiring to operate as a dealer or 

market agency to apply for registration by filing a properly executed application for registration and furnishing a 

bond). 

28 7 U.S.C. § 203. The original penalty was $750 per offense and $50 each day it continues. The current penalty is 

effective as ofMarch 14, 2018. See 7 CFR 3.91(1). 29 7 U.S.C. § 204; see 9 C.F.R. § 201.29(a), (b) (requiring every dealer or market agency to execute and maintain a 

reasonable bond; prohibiting any dealer or market agency from operating without having on file and in effect a bond 

in compliance with regulations). 30 9 CFR 201.10. Statutory authority for requiring dealers to file annual reports derives from Section 9 of the Federal 

Trade Commission Act, which is made applicable to the powers of the Secretary by Section 402 of the Packers and 

Stockyards Act. 7 U.S.C. § 222. 31 The PSP Form 3001 , Annual Report of Dealer or Market Agency Buying on Commission, is available on line at: 

https://www.ams.usda.gov/sites/default/files/media/PSP300 l .pdf. 

20 
financial information, including assets and liabilities by type, net worth, income, expenses, and net 

profit. 

There are 3,419 dealers and BOCs with active32 PSD registrations. Of the active dealers 

and BOCs, 3 ;248 filed annual reports for fiscal year 201 7 or 2018, or both. There are 171 active 

dealers that did not file an annual report for either ofthose years. For purposes ofthe present study, 

PSD used 2017 and 2018 annual report data from registered dealers, whichever was most current. 

The dealers not filing 2017 or 2018 annual reports as of June 30, 2019, did not file for 

various reasons. Many are new registrants that were not registered in 2017 or 2018 and are not 

required to file reports until 2020. New entities whose first fiscal year after registering with PSD 

fiscal year ends in 2019 have not yet reached the filing deadline as of the date of this report. PSD 

used 2017 annual report data in some instances, because timely filed reports from dealers whose 

fiscal years ended December 31, 2018, had not yet been processed or entered into the PSD database 

at the time of this report. 

Other non-filers include persons registered as dealers, but who are employees ofpackers,33 

or are employees or salespeople working for other dealers. 34 Others may be new registrants who 

will not file reports until their 2019 reports are due. Finally, some non-filers simply have not met 

their obligation to file a report and may have enforcement action pending for not filing. 35 

32 Active dealer data are current as of June 30, 2019, and does not include suspended registrants. 33 Known as "packer buyers," these people are employed by a packer for purposes of purchasing livestock for the 

packer. There are 996 packer buyers registered with PSD as dealers, who are not required to maintain a bond or file 

annual reports. The employing packer's bond and the packer trust provision would apply in cases of non-payment. 34 For example, a large livestock dealer employs nearly two dozen salespeople who are registered as dealers, but 

similar to packer buyers, they are not required to file annual reports. The employing dealer clears its salespeople, 

meaning that any bond claims that could be brought against the salespeople would be filed on the employing 

dealer's bond. 35 Enforcement for non-filing of annual reports is authorized by Sec. 10 of the Federal Trade Commission Act. PSD 

must refer enforcement to the Department of Justice, which will file an action in federal district court. The penalty 

for failing to file is $559 for each day the filer continues to fail to file. 

21 
Of the 3,248 active dealers that filed annual reports for 2017 or 2018, 2,947 or 90.7 percent 

maintained clause 2 dealer bonds, 

36 meaning that they are bonded for their own purchases. The 

remaining 301 dealers are mostly clearees (257), meaning they are cleared by another entity's 

bond. Of the 171 dealers that did not file annual reports, 152 either had valid bonds or were 

clearees. 

Of the 3,248 dealer annual reports filed, 2,929 reported livestock dealer purchase volume 

or livestock bought on commission volume. The other 319 entities filed dealer annual reports but 

reported no purchase volume. Table 1 below summarizes these numbers and shows the dealer and 

BOC volume reported in each category. 

Table 1. Active Dealers 

Category Dealers Volume Volume Volume 

(count) ($b) DLR ($b) BOC ($b) Total 

Total Active Dealers 3,419 16.799 10.278 27.077 

Total Not Filing Annual Report 171 - - -

Total Filing Annual Report 3,248 16.799 10.278 27.077 

Filed Annual Report with Bond 2,947 15.750 9.008 24.758 

Filed Annual Report as Clearee 257 0.981 1.237 2.218 

Filed Annual Report with No Bond 44 0.067 0.033 0.100 

Total filing Annual Report 3,248 16.799 10.278 27.077 

Filed Annual Report with Volume 2,929 16.799 10.278 27.077 

Filed Annual Report with $0 Volume 319 0 0 0 

Note that volumes reported in this table and all others in this report are in billions ofdollars 

and rounded to the nearest $1 million. Detail may not sum to the totals shown due to rounding. 

Defining a Default. For purposes ofthis study, a default is considered an instance in which 

a buyer has failed to pay for livestock and the seller has filed either a bond claim or a trust claim, 

36 Regulations governing Packers and Stockyards Act bonding requirements are found at 9 CFR 201.27 through 

201 .34. There are four types of bonds. Clause 1 bonds are required for market agencies selling on commission. A 

Clause 2 bond is required for livestock dealers and market agencies buying on commission. Clause 3 bonds are 

required for clearors. Clause 4 bonds are required for packers that purchase over $500,000 of livestock annually. 

Required bond amounts are determined by formulas specific to each bond type. 

22 
or both, as applicable. With respect to the poultry statutory trust, a default is considered to be an 

instance in which a live poultry dealer has failed to pay for poultry purchased in cash sales or 

obtained under a poultry growing arrangement, and the seller or grower has filed a trust claim. 

Administering a Trust. By statute, the packer acts as trustee for the packer statutory trust. 

When an unpaid livestock seller wishes to file a trust claim, the seller must file notice of the claim 

with the Secretary and with the packer as trustee. PSD, as the Secretary' s designated 

representative, receives notice of trust claims from unpaid sellers. 

PSD learns of packer statutory trust situations in several ways. Most often, notice comes 

from livestock sellers who are not paid and request information on filing trust claims. Sometimes, 

a seller receives notice from their bank that a check in payment for livestock was returned for 

insufficient funds, and the seller contacts PSD as a result. In a few cases, the packer ·itself has 

contacted PSD to infc?rm of payment problems and that sellers may not receive payment. In each 

of these instances, PSD activates an investigation team to review the packer' s purchase and 

payment records. PSD notifies all sellers ofthe potential for non-payment and provides instruction 

for filing both bond claims and statutory trust claims. 

PSD tracks and schedules all bond and trust claims and assesses the validity ofthose claims. 

PSD does not make final determinations of the validity of claims; rather it provides the trustee 

(bond and statutory trust) with a schedule of the apparently valid claims. For bond claims, PSD 

continues to monitor payments to sellers and is available to the trustee for guidance as needed. 

Where trust claims have been filed, PSD continues its work to account for and inventory all trust 

assets. PSD prepares and reviews pro-rata asset distribution schedules and provides those to the 

packer as trustee. PSD continues its work by monitoring trust assets to prevent packers from 

dissipating those assets. If it appears that trust assets could be dissipated, PSD gives notice to 

23 
creditors that any disbursements of trust assets are in breach of trust. In extreme cases, PSD may 

seek a temporary restraining order (TRO) to stop a packer from dissipating trust assets. 

V. Elements of the Feasibility Study 

This report addresses each ofthe feasibility study elements set forth in the 2018 Farm Bill. 

The elements are arranged here to first give a broad overview of the industry, then focus more 

closely on specific issues. The report examines circumstances unique to livestock dealers, then 

discusses the effectiveness of statutory trusts in other segments of agriculture. The report reviews 

anticipated recoveries for livestock sellers under a dealer statutory trust, and how such a trust 

would impact sellers if a dealer declared bankruptcy. The report considers the effects of exempting 

dealers under a de minimis threshold from the trust. Finally, the report looks at buyer and seller 

behavior in markets, the potential effects of a livestock dealer statutory trust on credit availability, 

and the feasibility of industry-wide adoption of electronic funds transfers in payment for livestock 

purchases. 

To complete the study, PSD examined and analyzed industry data as it applied to each of 

the elements. This report contains the result of PSD's analysis, as well as an analysis of public 

comments related to each study element. Appendices to this report include expanded summaries 

of public comments received. The full text of all comments received is available at 

www.regulations.gov. 37 

The 2018 Farm Bill did not specifically instruct the Secretary to survey the industry for its 

views on whether a livestock dealer statutory trust should be implemented, and therefore, that 

37 https://www.regulations.gov/docu ment?D=AMS-FTPP-19-0037-0001 

24 
question was not posed to the public for comment. Nonetheless, nearly every one of the 1,597 

comments received expressed an opinion either supporting or opposing a dealer statutory trust. 

Not all commenters identified the elements or questions to which they were responding. 

Therefore, where numbers are used in this report to indicate the number of responses for each 

element, the numbers are approximate. PSD used its judgment to assign comments to one or more 

issues. The numbers included here will not equal the total number of comments. Many commenters 

commented on only certain issues and not others. 

VI. Circumstances Unique to Livestock Dealers 

Study Element: Examine unique circumstances common to livestock dealers and how 

those circumstances could impact the functionality of a livestock dealer statutory trust. 

Background: Livestock dealers are unique among the types of entities that operate 

subject to the P&S Act. They differ from packers, who generally operate slaughtering and/or 

processing plants and are not in the business of buying or selling livestock on commission or 

reselling livestock as a dealer. 38 Livestock dealers differ from most live poultry dealers, who are 

in the business of buying or obtaining live poultry for slaughter and not reselling poultry for other 

purposes.39 Livestock packer and live poultry dealer business activities are well defined, with a 

tangible output of meat products that are often captured as assets in the event of a default. The 

livestock dealer's business processes are more complex, with no clear output of product. 

38 9 CFR 203 .19 provides guidance on when a packer may engage in dealer activity. Generally, approval to engage 

in such behavior requires that the livestock dealer activity not create a conflict of interest or result in a restraint of 

competition. 39 A small portion of the poultry industry involves live bird purchases and sales. 

25 
The Dealer Process 

Figure 1. Livestock Purchases by Dealers 

As illustrated in Figure 1, a livestock dealer may operate in many capacities, purchasing 

livestock in multiple ways for multiple purposes. Dealers operating subject to the P&S Act tend to 

be individuals or small businesses owned and operated by individuals. The dealer's business 

structure is often informal, lacking software programs for record keeping and being less likely to 

undergo annual financial audits. Many dealers also have their own farming or ranching operations 

and buy livestock for their own production.40 This unique, complex business structure often leads 

40 PSD does not maintain data on the number of dealers who are also producers. Producers are not regulated under 

the P&S Act and therefore do not report purchase or sales volumes to PSD. 

26 
to comingling of livestock purchases and records, creating more difficulty in discerning regulated 

and unregulated activities that would be subject to trust protections. The lack offormality in record 

keeping can complicate the tracing of assets ifthe trust is evoked. 

Another complicated aspect of dealer operations is the transfer of possession of livestock. 

Multiple transactions by dealers involving the same livestock can occur very quickly. This can 

impact a seller's ability to trace assets if necessary. Dealers sometimes schedule the transportation 

oflivestock from the point ofpurchase to a customer's location without taking physical possession 

of the livestock themselves. For example, a dealer might purchase livestock at an auction market 

for a particular customer. The dealer contracts with a trucker, who picks up the ,livestock from the 

auction market and delivers it to the dealer's customer. In these types of transactions, the dealer 

does not maintain a livestock inventory in his or her possession. By contrast, packers and live 

poultry dealers take physical possession of livestock or poultry and maintain possession from 

purchase to end product through the packing and slaughtering processes, as illustrated in Figure 2. 

27 
The Packer Process 

Figure 2. Livestock Purchases by Packers 

Livestock dealers may also be registered and operate as market agencies buying on 

comm1ss10n (BOC). When buying on comm1ss10n, the principal may be "disclosed" or 

"undisclosed," a distinction that affects the commission buyer's liability in case of nonpayment. 

Other regulated entities can also operate dealer businesses. Some auction markets, for example, 

and even some packers41 have dealer registrations that could make them subject to a dealer 

statutory trust. 

Some livestock dealers are clearees (operating under another dealer's bond), and some 

operate as salaried packer buyers. In the case of a clearee, bond claims for nonpayment are filed 

41 See 9 CFR203.19. 

28 
against the bondholder (clearor). Under a dealer trust, claims might be filed against the clearee, 

the clearor, or both, depending on the circumstances of the transaction. In the case of a packer 

buyer, bond claims are filed against the packer's bond. Even if there were a dealer trust in place, 

seller claims would likely still be filed as packer trust claims because the packer buyer, as an 

employee of the packer, would not maintain possession of any trust assets. Clearees and some 

BOCs might also be less likely to possess trust assets that could be recovered in the event of a 

default. 

PSD data indicate that most livestock dealers deal in cattle; however, some dealers 

specialize in other species, such as sheep, goats, hogs, or horses. This is important when 

considering whether to exempt dealers from the trust requirements based upon an annual purchase 

threshold. On a per head basis, cattle values are much higher than those for sheep, goats, hogs, or 

horses. 

Each of these aspects of livestock dealer operations would be important to consider in the 

drafting phase of any dealer statutory trust legislation. 

29 
The Business Activities of a Livestock Dealer I 

Purchases Livestock to Resell as a Livestock 

Dealer 

Purchases Livestock as a Market Agency, 

Buying on Commission 

Purchases Livestock for Farm Use or Other 

Producer Activities 

Purchases Livestock as a Clearee 

Purchases Livestock as a Packer Buyer 

Purchases Livestock as an Employee of 

Principal 

The Livestock Dealer purchases livestock at auction markets 

or from producers. The dealer resells the livestock without 

changing the composition of the animal for profit at other 

market agencies selling on commission, to feedlots, to 

packers/slaughterers, or to local farmers/producers. The dealer 

is responsible for paying the seller for the livestock. The 

dealer may never have the livestock in bis/her possession and 

the livestock remain in transit from purchase location to fmal 

buver. 

The Livestock Dealer purchases livestock on the account of 

others on a commission basis at auction markets or from 

producers. The dealer receives a negotiated commission rate 

per head or per weight designation as compensation by the 

account owner. The account owner (principal) is often 

responsible for the payment to the seller. The livestock are 

often not in the possession of the dealer and transferred 

through hauling arrangements from purchase location to 

principal's location or principal's customer location. Note: 

these are market agency transactions and not dealer 

transactions. 

The Livestock Dealer purchases livestock from at auction 

markets or from producers to maintain on feed or use in 

another farm production. The livestock is maintained long 

enough to change the composition of the animal. This is not 

an activity regulated by PSD. However, co-mingling of 

records with dealer activities is frequent and may violate the 

Packers and Stockyards Act's record-keeping requirements. 

The dealer often uses one checking account for all purchases 

and often purchases the dealer cattle and producer cattle on 

one invoice. 

A livestock dealer may be provided bond coverage by another 

PSD regulated entity via a clearing service conditional bond. 

This type of livestock dealer often purchases livestock on the 

account of the principal. The account holder (principal) 

would be responsible for payment to the seller and the clearee 

receives a commission or other payment for services. Hauling 

of the livestock from purchase location to principal's 

customer is arranged. 

A packer buyer is a salaried employee of a packer who is 

purchasing livestock for the account of the packer at market 

agencies selling on commission, from producers, or other 

feeding operations. The account holder (principal) is 

responsible for the payment to the seller. The livestock is 

sbjpped from purchase location to principa]'s location. 

PSD regulated entities (other than packers) sometimes have 

an agent who is a salaried employee purchase livestock on 

their account at market agencies or producers. Feedlots and 

backgrounders sometimes have salaried representatives 

purchase livestock for feeding. The agent would be covered 

under the principal's bond coverage as a salaried employee 

and would not have separate coverage. The account holder is 

responsible for payment to the seller. The livestock is often 

sbipped from purchase location to principal's location. 

30 
Analysis: Dealers and Market Agencies Buying on Commission. Table 2 shows that 

a total $10.3 billion or 38.0 percent of total reported livestock purchase volume is made up of the 

value oflivestock bought on commission for the account of others. Since the P&S Act specifically 

defines a dealer as a person who is not a market agency and a market agency as any person buying 

or selling livestock on commission, these purchases, even ifmade by someone who is otherwise a 

registered dealer, are not considered dealer transactions. When filing annual reports of dealer 

purchase volume, some entities report only buying on commission (BOC) purchase volume, some 

report both dealer and BOC purchase volume, and others incorrectly report farming, ranching, or 

feeding types of purchase volume. Persons acting as market agencies buying on commission are 

subject to the Act and are required to maintain bonds based on the dollar value of the livestock 

they buy on commission, just like livestock dealers. 

Table 2. Dealer Purchases and BOC Purchases (2017 or 2018 Annual Reports) 

Number Dealer BOC Total 

Category of Purchase Purchase Purchase 

Dealers Volume Volume Volume 

($ billion) ($ billion) ($ billion) 

Dealers reporting livestock purchase 2,929 16.799 10.278 27.077 

volume in 2017 or 2018 

Dealers Reporting any Dealer 2,112 16.799 3.252 20.050 

Volume 

Dealers Reporting both Dealer and BOC 592 3.986 3.252 7.238 

Volume 

Dealers Reporting Only Dealer Volume 1,520 12.812 0 12.812 

Dealers with Only BOC Volume 817 0 7.026 7.026 

In BOC transactions, the principal is the legal purchaser and owner of the livestock in the 

transaction. The commission buyer does not own the livestock, but is paid a fee by the principal 

for the buying services. The commission the principal pays its agent is most often expressed and 

paid in the form of a certain amount ( e.g. 50 cents) per hundredweight of the livestock the agent 

31 
purchases on behalf of the principal. Alternatively, some commissions are expressed and paid in 

the form of a certain amount ( e.g. five dollars) per head of livestock purchased. The principal in 

a BOC transaction may be a bonded livestock buyer subject to the Act, such as a packer or a dealer, 

or it may be an unbonded entity not subject to the Act, such as a producer or a feedlot. If the 

principal is bonded, and the principal defaults on payment to the seller, PSD encourages the seller 

to file a claim on both the principal's bond and BOC agent's bond because the BOC agent's bond 

provides additional protection to the seller if the principal' s bond does not pay the full amount of 

the claim. If the principal is not bonded and defaults, the BOC's bond may provide the only 

protection to the seller in the event of a default. 

In cases where the principle is a packer, unpaid sellers are also encouraged to file trust 

claims pursuant to the packer statutory trust. The same would likely be true under a livestock dealer 

statutory trust. In addition to filing claims under the BOC's bond and the principle dealer's bond, 

unpaid sellers could file trust claims under the principle dealer. 

A dealer statutory trust that includes BOC transactions could provide valuable added 

protection to livestock sellers. Otherwise, sellers are limited to protection afforded by the 

principal's bond (if any) and to that afforded by the BOC/dealer's bond' to the extent ofthe BOC's 

liability. The BOC's liability depends on whether the principle is disclosed to the seller. Ifthe 

principle is disclosed to the seller, the BOC is liable for the full purchase price of the livestock. 

However, even if there were a statutory trust covering BOC transactions, recovery from a BOC 

could be limited due to a lack of trust assets, particularly if the BOC does not take possession of 

the livestock or the handle the funds 42 . 

42 Handle funds are provided by one of the parties to the sale that cover expenses such as physical transportation of 

animals sold. 

32 
Dealers and Clearees. A livestock dealer may be provided bond coverage by another 

regulated entity. A clearor is the entity providing the bond coverage and a clearee is the entity that 

is covered by the clearor's bond. Dealers operating as clearees are required to file annual reports 

and report their livestock purchase volume. Clearors are required to file annual reports of their 

own purchase volume and report separately the purchase volume of those for whom they clear. 

Table 3 summarizes the purchase volumes ofthe 264 dealer clearees (of281 registered with PSD) 

that filed annual reports for 2017 or 2018. 

Table 3. Dealers as Clearees (2017/2018 Annual Reports) 

Number Dealer BOC Total 

Category of Purchase Purchase Purchase 

Dealers Volume Volume Volume 

($ billion) ($ billion) ($ billion) 

Total Active Dealers 3,419 16.794 10.278 27.077 

Filed Annual Report as Clearee 264 1.035 1.334 2.369 

Clearees Reporting Dealer Volume 84 1.035 0.183 1.218 

Clearees with ONLY BOC Volume 137 0 1.023 1.023 

Clearees Reporting no Volume 43 0 0 0 

Clearees that did not file in 2017 or 2018 17 - - -

Livestock purchases made by clearees are dealer transactions and would be viewed the 

same as other dealer purchases under a dealer statutory trust. An important distinction is that the 

bond is held by the clearor, and therefore bond claims would be filed against the clearor, while a 

trust claim for the same incident would be filed against the clearee in most cases, improving the 

seller's chances for full recovery under valid claims. Ifthe clearee is purchasing livestock on behalf 

ofthe clearor, the purchase may or may not be a BOC transaction; application ofthe provisions of 

a dealer statutory trust would depend upon the specific nature of the transaction. 

Dealers by Livestock Species. The majority of dealer purchase activity involves cattle. 

Of the 2,929 dealers and BOCs filing 2017 or 2018 annual reports who reported purchase volume, 

33 
2,670 reported volume for cattle or calves. Dealers reporting hog purchases numbered 381; sheep 

and goat purchases, 397; and horse/mule purchases, 227. Table 4 shows active dealer purchase 

volume by species, using 201 7 and 2018 annual reports. Note that the number of dealers per 

species sums to more than the total number ofdealers filing because many dealers reported activity 

in more than one category. 

T a e bl 4 A . ct1ve D 1 ea ers FT 1mg b >Y S;pec1es 

Number Dealer BOC Total 

Category of Purchase Purchase Purchase 

Dealers Volume Volume Volume 

($ billion) ($ billion) ($ billion) 

Filing in 2017 or 2018 With Purchase 2,929 16.799 10.278 27.077 

Volume 

Total Reporting Cattle/Calves 2,670 15.229 9.938 25.666 

Dealers w/ Volume for Own Account 1,884 15.229 3.214 18.444 

Dealers with ONLY BOC volume 786 0 6.924 6.924 

Total Reporting Hogs 381 1.294 0.278 1.480 

Dealers w/ Volume for Own Account 356 1.294 0.015 1.253 

Dealers with ONLY BOC volume 25 0 0.263 0.227 

Total Reporting Sheep & Goats 397 0.221 0.054 0.264 

Dealers w/ Volume for Own Account 364 0.221 0.016 0.233 

Dealers with ONLY BOC volume 33 0 0.037 0.031 

Total Reporting Horses & Mules 227 0.054 0.003 0.057 

Dealers w/ Volume for Own Account 219 0.054 0.003 0.055 

Dealers with ONLY BOC volume 8 0 0.002 0.002 

Dealers by Size -Estimate of Number of Dealers Subject to a Dealer statutory trust. 

This study considers the effect of exempting dealers with average annual dealer purchases 

under a de minimis threshold from a potential livestock dealer statutory trust. The number of 

dealers and transaction volume subj ect to a dealer statutory trust would depend on whether BOC 

transactions were included and the level, if any, of a de 7:1inimis exemption. For this study, PSD 

34 
considers the impact of a $500,000 de minimis threshold as specified under the packer trust. Table 

5 below shows the distribution of dealers by size of reported own-account dealer volume. 

Table 5. Dealer Size based on 201 7/2018 Annual Reports -

bO,y wn-Account DlVl ea er o ume

Category 

Total Dealers Filing Annual Reports 

Dealers Filing with $0 Dir. Volume 

Dealers Filing with any Dir. Volume 

Dealers with $1 to $100,000 

Dealers with $100,000 to $250,000 

Dealers with $250,000 to $500,000 

Dealers with $500,000 to $1.3 Mil. 

Dealers with $1.3 Mil. to $2.6 Mil. 

Dealers with $2.6 Mil. to $5 Mil. 

Dealers with $5 Mil. to $100 Mil. 

Dealers with More Than $100 Mil. 

Dealers Filing with > $0 Dealer Volume 

Dealers filing with > $250,000 Dir. Vol. 

Dealers filing with > $500,000 Dir. Vol. 

Total Dealers Not Filing Annual Reports 

Dealers Volume Volume Volume 

(count) ($b)DLR ($b) BOC ($b) Total 

3,248 $16.799 $10.278 $27.077 

1,136 $0 $7.026 $7.026 

2,112 $16.799 $3.252 $20.050 

313 $0.014 $0.120 $0.134 

225 $0.038 $0.153 $0.191 

231 $0.082 $0.244 $0.326 

364 $0.308 $0.426 $0.734 

275 $0.520 $0.380 $0.900 

196 $0.721 $0.344 $L065 

478 $10.,038 $1.501 $11.538 

30 $5.078 $0.084 $5.162 

2,112 $16.799 $3.252 $20.050 

1,574 $16.747 $2.979 $19.726 

1,343 $16.665 $2.735 $19.399 

171 $0 $0 $0 

PSD estimates that 70 of the 171 non-filing dealers have over $500,000 in volume,43 so if 

a dealer trust applied only to dealers with over $500,000 in purchases, and did not apply to BOC 

transactions, the trust would apply to approximately 1,400 dealers. If there were no de minimis 

exemption, a dealer statutory trust that did not apply to BOC transactions would apply to 

approximately 2,200 active dealers with own-account dealer purchases. 

Distribution of Dealers by Total Volume (Dealer Volume plus BOC Volume). When 

considering both dealers' own-account volume and BOC volume, the estimated number of dealers 

43 The estimate of the number of non-filers that would likely have over $500,000 in dealer volume is based on the 

size of their bonds and the distributions of filers by size. 

35 
subject to a trust increases. Table 6 below shows the distribution of dealers by size of reported 

total ( own-account plus BOC) volume. 

Table 6. Dealer Size Based on 2017/2018 Annual Reports -

b>Y Dea1er 

Category 

Total Dealers Filing Annual Reports 

Dealers Filing with $0 Total Volume 

Dealers Filing with any Volume 

Dealers with $1 to $100,000 

Dealers with $100,000 to $250,000 

Dealers with $250,000 to $500,000 

Dealers with $500,000 to $1.3 Mil. 

Dealers with $1.3 Mil. to $2.6 Mil. 

Dealers with $2.6 Mil. to $5 Mil. 

Dealers with $5 Mil. to $100 Mil. 

Dealers with More Than $100 Mil. 

Dealers Filing with > $0 Total Volume 

Dealers filing with> $250,000 Tot. Vol. 

Dealers filing with> $500,000 Tot. Vol. 

Total Dealers Not Filing Annual Reports 

Plus BOC V 1o ume 

Dealers Volume Volume Volume 

(count) ($b)DLR ($b) BOC ($b) Total 

3,248 $16.799 $10.278 $27.077 

319 $0 $0 $0 

2,929 $16.799 $10.278 $27.077 

281 $0.010 $0.002 $0.012 

233 $0.029 $0.011 $0.040 

252 $0.067 $0.023 $0.091 

478 $0.242 $0.176 $0.418 

419 $0.447 $0.355 $0.802 

341 $0.634 $0.630 $1.265 

880 $10.167 $6.977 $17.145 

45 · $5.201 $2.104 $7.305 

2,929 $16.799 $10.278 $27.077 

2,415 $16.759 $10.265 $27.025 

2,163 $16.692 $10.242 $26.934 

171 $0 $0 $0 

If a dealer trust applied to both own-account and BOC transactions, but only applied to 

dealers with over $500,000 in total purchases, it would apply to approximately 2,300 dealers. If a 

dealer trust applied to both own-account and BOC transactions, but provided no de minimis 

exemption, it would apply to approximately 3,100 active dealers with total purchases. 

Dealer Activity of SOCs. The Act requires auction markets or "Market Agencies Selling 

on Commission" (SOCs) be registered with PSD and to maintain custodial accounts and bonds (or 

bond equivalents). The Act also requires SOCs to maintain dealer bonds (or equivalents) for their 

own dealer activity. SOCs are not permitted to be cleared by others. 

SOCs also must file PSD form 2110 "Annual Report of Market Agency Selling on 

Commission." In addition to reporting the volumes of livestock sold on consignment through the 

36 
market, form 2110 requires SOCs to report the dollar volume of their own dealer and BOC 

purchases. 

Table 7 below shows 1,166 active SOCs registered with PSD. Of those, 480, or 41.2 

percent, maintained dealer bonds and/or reported dealer activity. These SOCs would be subject to 

a dealer statutory trust for their dealer activity. Ofthe 478 SOCs with dealer bonds44, 260 reported 

non-zero dealer volume or BOC volume. 130 SOCs reported own-account dealer purchases over 

$500,00 and 148 reported total (including BOC) purchases over $500,000. 

SOC dealer activity is highly concentrated. Of the total volume of $1.889 billion reported, 

50.4 percent, or $953 million was reported by the three largest SOCs. Of the 236 SOC firms that 

reported non-zero own-account dealer volume, 130 reported dealer volume over $500,000. 

Table 7. SOC Dealer Activity 

Category 

Active SOC firms 

SOCs w/ no CL2 Bond and $0 Volume 

SOC firms reporting Dealer Volume, 

BOC Volume, or with CL2 bonds 

SOC dealers not reporting 

SOCs Reporting Dealer or BOC Volume 

SOCs w/ Dealer Volume 

SOCs w/ ONLY BOC Volume 

SOCs w/ CL2 bonds but $0 Volume 

SOCs w/ > $500,000 Dealer Volume 

SOCs w/ > $500,000 Dealer+ BOC Vol. 

SOCs w/ $1 to $500,000 Dealer Volume 

socs Volume Volume Volume 

(count) ($b) DLR ($b) BOC ($b) Total 

1,166 1.222 0.667 $1.889 

686 0 0 0 

480 1.222 0.667 1.889 

9 - - -

260 1.222 0.667 1.889 

236 1.222 0.550 1.773 

24 0 0.116 0.116 

211 0 0 0 

130 1.206 0.530 1.736 

148 1.207 0.663 1.870 

106 0.016 0.020 0.036 

If a dealer trust applied to both own-account and BOC transactions, but only applied to 

dealers with over $500,000 in total volume, approximately 150 SOC firms would also be subj ect 

to the trust. Ifthere were no de minimis exemption, a dealer statutory trust that applied to both 

44 Two of those 480 SOC firms reported dealer activity but did not have a clause 2 bond. 

37 
own-account and BOC transactions would also apply to the approximately 260 active SOC firms 

with total dealer or BOC purchases. 

While the typical dealer activity of an SOC is small compared to its SOC activity, the large 

number of SOC firms that maintain dealer bonds (478), including 130 or 148 SOC firms that 

reported more than $500,000 in dealer or total volume, make SOC dealer activity relevant to this 

study. 

Summary - Firms Subject to a Dealer statutory trust. The total number of registered 

dealers excluding packer buyers is 3,419. This study estimates that a dealer statutory trust that 

only includes own-account dealer transactions with no de minimis exemption would apply to about 

2,200 dealers.45 In addition, about 240 SOC firms with own-account dealer activity would also be 

subject. If a de minimis exemption of $500,000 were applied, the number would drop to about 

1,400 dealers. In addition, there would be about 130 SOC firms that engaged in own-account 

dealer activity over $500,000 that would be subject. 

A dealer statutory trust that includes both own-account dealer and BOC transactions with 

no de minimis exemption would apply to about 3,100 dealers.46 In addition, about 260 SOC firms 

with dealer or BOC activity would also be subject. If a de minimis exemption of $500,000 were 

applied, the number would drop to about 2,300 dealers. In addition, there would be about 150 

SOC firms that engaged in dealer activity over $500,000 that would be subject. 

Table 8 shows the estimates of the number of entities, including SOC firms that had dealer 

and BOC activity that would be subject to a dealer statutory trust under differing scenarios. 

45 This number excludes those dealers that reported zero volume (1 ,136) and an estimate of the non-filers that did 

not have own-account dealer activity. 46 This number is the 3,419 total registered dealers less those dealers that reported zero volume (319) and less an 

estimate of non-filing dealers that had no activity. 

38 
Table 8. Number of Entities Subject to a Dealer Statutory Trust 

U dn er fff£ 1 enng . S . cenanos

Dealer statutory trust Scenario Dealer BOC Dealer & BOC 

Dealer and or BOC Activity / Activity Activity Activity 

Exemption Amount 

All Entities with Activity- No Exemption 2,459 1,552 3,343 

De Minimis Exemption of $100,000 2,079 1,445 3,015 

De Minimis Exemption of $250,000 1,813 1,332 2,720 

De Minimis Exemption of $500,000 1,544 1,215 2,425 

Note: The estimates in this table include SOC firms reporting dealer activity. 

Record Keeping: With such a mix of business operations, it is important that livestock 

dealers keep distinct accounts and records for each business type they operate. Unfortunately, PSD 

has seen many smaller volume dealer operations co-mingle their farmer and producer activity 

accounts and records with their livestock dealer and/or market agency business accounts and 

records. This concern is typically not seen with packers, which generally maintain a more formal 

business structure that does not encourage the co-mingling of funds. 

Public Comment Summary: Commenters did not address the multiple business models 

described above when discussing the unique circumstances of dealers. PSD can infer that this is 

due, in part, to the industry viewing dealers simply as buyers and sellers oflivestock without regard 

for the mode of purchase and sale. Instead, in addressing the unique circumstances of livestock 

dealers, many commenters mentioned the speed of turnovers between dealer purchases and 

transfers or resales of livestock. They assert this aspect of the dealer business creates a challenge 

to the implementation of a dealer trust, but not an insurmountable one. Commenters also noted 

aspects of a potential dealer statutory trust they think important to its functionality. First, because 

livestock inventory moves in and out of the dealer' s possession so quickly, the inclusion of 

proceeds/receivables for livestock purchased in cash sales as trust assets is important. For example, 

if a dealer purchases (but doesn't pay for) livestock at an auction market and resells the animals to 

39 
a feed yard, commenters claim the proceeds the dealer received from the feed yard should be trust 

assets. This would be the case until unpaid cash sellers of livestock to the dealer are paid in full. 

Second, some commenters said unpaid sellers should not be required to trace their specific 

livestock as trust assets, i.e., a floating trust is preferred. Third, commenters maintain that sellers 

should be able to "claw-back" improperly diverted trust assets. 

Commenters discussed the unique circumstances of dealers as compared to packers when 

acting as trustees in packer statutory trust situations. Generally, a packer is a larger operation than 

a dealer and has more resources than a dealer, and according to commenters, packers are more 

likely than dealers to have time and necessary resources, such as personnel with expertise, to serve 

as trustees. Commenters wrote that dealers may also not have the same professionally maintained 

financial statements that packers typically have. Commenters suggested that due to limited funds, 

and possibly an informal business structure, a livestock dealer may not be regularly audited 

professionally to ensure proper finances. All of this contributes to commenters' concerns that 

having dealers act as trustees might impair the functionality of a dealer statutory trust. 

Study Finding: Existing packer statutory trust language is useful as a basis for 

understanding how trusts operate to protect sellers'. interests in livestock transactions, but it does 

not precisely fit the livestock dealer business model. Livestock dealers may perform multiple 

commercial functions. Depending on their various roles, they might not carry their own bonds, 

might not take possession of livestock they purchase, and might not maintain adequate assets to 

cover defaults, thus jeopardizing the financial welfare of sellers with whom they do business. A 

dealer statutory trust could improve sellers' chances of obtaining full recoveries if it took into 

account each of the unique circumstances under which livestock dealers operate and the value of 

the livestock sales they manage. 

40 
VII. Effectiveness of Statutory Trusts m Other Segments of Agriculture; Independent 

Trustee 

Study Element: Assess the effectiveness of statutory trusts in other segments of 

agriculture, whether similar effects could be experienced under a livestock dealer statutory trust, 

and whether authorizing the Secretary to appoint an independent trustee under the livestock dealer 

statutory trust would improve seller recovery. 

Background: AMS administers the packer statutory trust and the poultry statutory trust, 

both created by amendments to the P&S Act, as well as the statutory trust provisions under PACA. 

Each of the amendments creating these statutory trusts followed a crisis or series of crises in the 

respective industry. 

Packer Statutory Trust. The packer statutory trust was established by amendment to the 

P&S Act in 197647 in response to changing livestock marketing patterns that increased livestock 

producers' exposure to risks created by certain business practices engaged in by members of the 

packing industry.

48 Between 1958 and early 1975, 167 packer businesses failed, leaving livestock 

sellers unpaid for over $43 million in livestock. The largest of the failures by far was that of 

American Beef Packers (ABP), which went bankrupt in January 1975 and left producers across 13 

states unpaid for over $20 million in livestock sales.49 Making matters worse was the fact that 

ABP's principal source of financing, General Electric Acceptance Corp., stood ahead of unpaid 

livestock sellers as creditors in the bankruptcy because of its security interest in ABP's inventory, 

including livestock and derivative products that the producers sold on a cash basis, and for which 

47 7 U.S.C. 196, Pub. L. 94-410 § 8, 90 Stat. 1251, September 13, 1976. This amendment (1) required meat packers 

with annual livestock purchases of over $500,000 to be bonded; (2) provided trust protection for producers in the 

event of nonpayment for livestock by a meat packer;

47 (3) expanded P&S's jurisdiction over wholesale brokers, 

dealers, and distributors marketing meat in commerce; and (4) authorized the Agency to assess civil penalties of not 

more than $10,000 per violation. 48 Senate Report No. 94-932, 94th Cong., 2d Sess. 49 House Report No. 94-1043, 94th Cong., 2d Sess., April 14, 1976. 

41 
they had not been paid. so The money generated through producers' inventory, accounts receivable, 

and proceeds was distributed to ABP's secured creditors and not to ABP's unpaid producers and 

feeders. 51 

Prior to the 1976 amendments, the U.S. Supreme Court held that the P&S Act, and the 

regulations thereunder, provided for payment to livestock sellers before the close of the next 

business day following the purchase, but did not require a packer to hold cattle or carcasses in trust 

until the sellers actually convert the checks they receive into cash. The Court concluded that the 

regulations were designed to regulate payment procedures between buyer and seller, but were not 

intended to determine security rights between the sellers and third parties holding a valid security 

interest under State law on the packer's assets. 52 

In considering the amendments, Congress noted that under the law at that time, "a packer 

is able to offer as security for a loan the livestock, meat, meat food products, or receivables or 

proceeds therefrom which he has not paid for. The producer, who was responsible for raising, 

feeding, and caring for the livestock, is left unpaid, while secured creditors reap the reward of his 

labors. "53 

Congress noted within the 1976 statutory amendment itself, "It is hereby found that a 

burden on and obstruction to commerce in livestock is caused by financing arrangements under 

which packers encumber, give lenders security interest in, or place liens on, livestock purchased 

by packers in cash sales, or on inventories of or receivables or proceeds from meat, meat food 

products, or livestock products therefrom, when payment is not made for the livestock and that 

50 Id. 

51 94 Cong. Rec. S 9689, June 17, 1976. 52 Mahon v. Stowers, 416 U.S. 100, 94 S. Ct. 1626, 40 L. Ed2d 79 (1974). The Court said, "Whatever might be the 

policy reasons for insuring that packers did not take unnecessary advantage of cattle sellers by holding funds for 

their own purposes, it is hard to see that those reasons would automatically require that such sellers stand on a better 

footing than persons who have extended secured credit to a packer." 53 Senate Report No. 94-932, 94th Cong., 2d Sess. 

42 
such arrangements are contrary to the public interest. This section is intended to remedy such 

burden on and obstruction to commerce in livestock and protect the public interest." 54 

The language establishing the packer trust states, "All livestock purchased by a packer in 

cash sales, and all inventories of, or receivables or proceeds from meat, meat food products, or 

livestock products derived therefrom, shall be held by such packer in trust for the benefit of all 

unpaid cash sellers of such livestock until full payment has been received by such unpaid 

sellers ... "55 The language sets forth certain other requirements for establishing a statutory trust. 

First, it exempts packers whose ~ual livestock purchases total $500,000 or less. Second, it 

requires unpaid sellers to file claims on the trust within thirty days of the final date for making full 

payment under section 409 of the P&S Act. Third, unpaid sellers are not considered to have been 

paid ifthey receive a payment instrument that is dishonored; however, these sellers must file claims 

on the trust within fifteen business days after receiving notice that the payment instrument was 

dishonored. Finally, the trust provision instructs that the seller's rights under the trust are preserved 

by the seller giving timely written notice to the packer and by filing notice with the Secretary. 

Poultry Statutory Trust. The poultry statutory trust was established by amendment to the 

P&S Act in 1987,

56 and arose in part due to changes in the structure of poultry production and 

financial failures affecting 1,700 poultry growers who were owed approximately $14 million. 57 In 

1984, the United States General Accounting Office (GAO) released results of a study it conducted 

examining regulation of the poultry industry under the P&S Act. GAO found poultry growers in 

favor of legislation that would provide them protections that mirrored those afforded livestock 

producers. 

54 7 U.S.C. 196(a). 55 7 U.S.C. 196(b). 56 7 U.S.C.197,Pub. L.100-173, 101 Stat.917, November23, 1987. 57 7 U.S.C. 204, amended Sept. 13, 1976. 

43 
Congress recognized the changing nature of poultry production, noting that in 1935, when 

the Secretary took jurisdiction over live poultry handlers, poultry was a food reserved for "Sunday 

dinner."58 Then, poultry was shipped live and sold directly to consumers in the cities. Large scale 

production of poultry, and particularly chickens/broilers, became widespread starting in the 

1950' s, and by the 1980' s, poultry companies had instituted a centralized process with hatcheries, 

feed mills and processing plants situated nearer the growers' farms. 59 

The 1987 Poultry Producers Financial Protection Act, which included the creation of a 

poultry statutory trust, was enacted to bring the P&S Act in line with "contemporary business 

practices."60 In addition, Congress noted, "Currently poultry producers are not afforded payment 

and trust protection comparable to that provided livestock producers under the Packers and 

Stockyards Act, 1921 , and fruit and vegetable growers under the Perishable Agricultural 

Commodities Act of 1984. In addition, the Bankruptcy Reform Act of 1984 provided payment 

assurance for grain producers in the case of grain elevator bankruptcies. Further, the Act providing 

supplemental appropriations for the fiscal year 1984 included provisions to require that the 

Government pay poultry processors within seven days for poultry and eggs. The bill will provide 

poultry growers with protection similar to that granted producers of other agricultural 

commodities."61 

Prior to creation of the poultry statutory trust, if a live poultry dealer declared bankruptcy, 

unpaid poultry growers were in the position of unsecured creditors. The poultry statutory trust 

protected poultry growers and sellers from circumstances that could inflict heavy losses on the 

U.S. agricultural economy. Like the packer statutory trust for livestock producers, the poultry 

58 102 Cong. Rec. 9270 (1956) 

59 H.R. 100-397 (1987) 

60 Id. 

61 H.R. 100-397 (1987). 

44 
statutory trust placed the grower in the position ahead of secured creditors in case of buyer 

bankruptcy. 

Congress's findings in the 1987 legislation creating the poultry statutory trust mirrored 

those in the 197 6 legislation that established the livestock packer statutory trust. 62 

The statutory language establishing the poultry statutory trust states, "All poultry obtained 

by purchase in cash sales or by poultry growing arrangement, and all inventories of, or receivables 

or proceeds from the poultry or poultry products derived therefrom, must be held by the live 

poultry dealer in trust for the benefit of all unpaid cash sellers or poultry growers of the poultry, 

until full payment has been received by the unpaid cash sellers or poultry growers." 

The language sets forth certain other requirements for establishing a statutory trust. First, 

it exempts live poultry dealers that do not have average annual sales of live poultry, or average 

annual value oflive poultry obtained by purchase or by poultry growing arrangement, in excess of 

$100,000. Second, it requires unpaid sellers to file claims on the trust within 30 days of the final 

date for making full payment under section 410 of the P &S Act. 63 Third, unpaid sellers are not 

considered to have been paid if they receive a payment instrument that is dishonored,64 however, 

such sellers must file claims on the trust within 15 business days after receiving notice that the 

payment instrument was dishonored. Finally, the trust provision instructs that the unpaid sellers' 

rights under the trust are preserved by the seller giving written notice to the live poultry dealer and 

by filing notice with the Secretary.65 

Trusts, Bonds, and Prompt Payments. Section 409 ofthe P&S Act requires full payment 

by a packer by the close of the next business day following the purchase of livestock and transfer 

62 7 U.S.C. 197(a). 63 7 U.S.C. 197(b) 64 7 U.S.C. 197(c). 65 7 U.S.C. 197(b). 

45 
of possession thereof, or in the case of a purchase on a carcass or "grade and yield" basis, the 

purchaser must make payment by the close of the first business day following the determination 

of the purchase price and deliver the full amount of the purchase price to the seller or the seller's 

duly authorized representative. 66 

The prompt payment provisions of the P&S Act permit livestock buyers and sellers to 

agree, in writing, to payment terms other than those set out in the Act. 67 That is, a seller oflivestock 

to a packer may agree in writing to give the packer more time to make payment than permitted 

under the Act. However, by agreeing to these terms, the seller may forfeit the benefits ofthe packer 

trust, since the written agreement may be considered an extension of credit rather than a cash sale. 

The definition of a cash sale is a sale in which the seller does not expressly extend credit 

to the buyer. 68 Section 201.200 of the P&S regulations requires packers who buy livestock on 

credit to obtain a written credit agreement from the seller that includes a waiver by the seller of 

their right to file a claim and recover under the trust:

69 

Section 410 of the P&S Act requires full payment by a live poultry dealer by the close of 

the next business day for cash sales of live poultry. Full payment to poultry growers under poultry 

growing arrangements must be made before the close of the 15th day following the week in which 

the poultry is slaughtered.

70 The Act does not provide for waiving prompt payment for poultry as 

it does in Section 409 for livestock. 

Packers that purchase more than $500,000 of livestock annually are subject to the trust 

provisions of the P&S Act and are also required to maintain a bond to secure their livestock 

66 7 U.S.C. 228b(a). 67 7 U.S.C. 228b(b). 68 7 U.S.C. 196(c), 197(e). 69 9 CFR 201.200. 70 7 U.S.C. l 97(a). 

46 
purchasing operations. 

71 There are some important interactions between packer bond coverage and 

the packer trust provisions of the Act. 

A bond claim is triggered when a livestock seller gives notice in writing to the surety or 

trustee of the bond ( e.g. the bank or other insurer) or to PSD that a packer has failed to pay for 

livestock. Under the filing requirements for packer and poultry trust claims, the seller has thirty 

(30) calendar days after payment was due to file a valid trust claim. Unpaid sellers have sixty (60) 

calendar days after payment was due to file a valid bond claim. 

Unless it believes the claim is frivolous, the surety or trustee or bank in the case of Trust 

Fund Agreements (TF A) or Trust Agreements with irrevocable Letters of Credit (T A/LOCs) must 

terminate the bond ( or withdraw the funds and cancel the TF A or TA /LOC) when a claim is filed. 72 

This is true not only for packer bonds, but also for dealer and market agency bonds. It is a violation 

of the Act for a packer, dealer, or market agency to operate without adequate bond coverage. 

Therefore, a bonded entity has a strong incentive to keep the surety or trustee of a bond from 

paying out from its bond. 

When a packer fails to pay for livestock, the seller often files two claims for the same 

transaction - a claim on the packer's bond and a packer trust claim. A packer that wants to remain 

in business will typically make a significant effort to pay the amount owed so that the seller will 

withdraw any pending bond or trust claims. The bond claimant may receive payment as a result of 

the trust claim, or if no trust claim was filed, the packer may pay the amount owed ( or a portion 

7 1 9 CFR 20 l.29(a). 72 9 CFR 201.27(d). Bonds and bond equivalents shall be filed on forms approved by the Administrator. Paragraph k 

of the PSD bond and trust fund agreement forms (P&SP 2000 and 2200, respectively), and paragraph c of the trust 

agreement form (P&SP 2300) contain these termination requirements. In practice, PSD will assist the surety or 

trustee in determining the apparent validity of the claim, though the surety or trustee will make the final 

determination. The surety or trustee will not terminate the bond or equivalent coverage unless it bas determined the 

claim was valid, and that it intends to pay the claim. The surety or trustee must also determine whether the claimant 

bas received or is likely to receive acceptable recovery on the subject transaction, and will therefore rescind the bond 

claim. 

47 
thereof) from other available funds. If an unpaid seller files both valid bond and valid trust claims, 

a payout from the trust or other funds is usually more desirable than a bond payout from the 

packer' s perspective, because the packer cannot lawfully continue operating if its bond has been 

terminated. 

PSD encourages unpaid sellers to file both bond and trust claims where available. When 

both bond and trust claims are filed on the same transaction, the seller does not receive double 

payment. In most cases, the trust payments are made and recorded first, and bond proceeds are 

then distributed on a pro-rata basis to fulfill remaining obligations. In many cases, especially when 

multiple sellers file claims, the total amount claimed is greater than the bond amount. In those 

cases, the bond payout is pro-rated among the unpaid valid claims. 

Bond claims are typically withdrawn when the claimant receives payment through a trust 

payout or another source of funds. In some cases, the claimant withdraws their bond claim upon 

reaching an agreement with the packer for a future payment or a payment plan. 

Table 9 provides an overview of 21 instances when a packer failed to pay for its livestock 

purchases and sellers filed bond claims and trust claims. This represents all cases of packer 

defaults during the study period except one. Sam Kane BeefProcessors, LLC (Kane), was involved 

in a significant packer default that resulted in the largest number and amount of trust and bond 

claims during the study period, with settlement continuing after the close of the study period. Kane 

is a unique case and is addressed separately and in greater detail later. Data on the Kane default is 

not included in Table 9. 

48 
locident 

# 

#1 

#2 

#3 

#4 

#5 

#6 

#7 

#8 

#9 

# 10 

# 11 

# 12 

# 13 

# 14 

# 15 

# 16 

# 17 

# 18 

# 19 

#20 

#21 

Total 

# of 

Trust 

Claims 

1 

0 

1 

1 

2 

1 

0 

0 

2 

1 

1 

1 

1 

0 

0 

9 

30 

28 

1 

37 

1 

118 

Total 

Trust 

Claim 

Amount 

$31,627 

$0 

$85,778 

$112,789 

$114,992 

$19,781 

$0 

$0 

$928,593 

$747,113 

$47,025 

$19,403 

$79,564 

$0 

$0 

$938,818 

$2,073,774 

$1,337,60 

0 

$18,723 

$3,298,188 

$4,727 

$9,858,494 

Table 9. Packer Trust and Bond Claims 

Valid Trust Non- # of Total 

Claim Valid Bond Bond 

Amount Trust Claim- Claim 

Claim ants Amount 

Amount 

$31,627 $0 1 $31,627 

$0 $0 1 $39,765 

$0 $85,778 0 $0 

$112,789 $0 0 $0 

$114,992 $0 1 $19,641 

$19,781 $0 0 $0 

$0 $0 1 $76,306 

$0 $0 1 $210,370 

$332,663 $595,930 2 $760,449 

$0 $747,113 1 $747,113 

$0 $47,025 1 $47,025 

$12,124 $7,279 2 $38,393 

$79,564 $0 0 $0 

$0 $0 1 $22,516 

$0 $0 1 $41,334 

$0 $938,818 14 $1,936,554 

$1,846,226 $227,548 40 $2,912,865 

$624,783 $712,817 38 $4,593,159 

$18,723 $0 1 $18,723 

$1,553,315 $1,744,873 41 $3,828,646 

$0 $4,727 0 $0 

$4,746,587 $5,111,907 147 $15,324,486 

Valid 

Bond 

Claim 

Amount 

$31,627 

$0 

$0 

$0 

$19,641 

$0 

$0 

$0 

$369,970 

$0 

$0 

$38,373 

$0 

$22,516 

$41,334 

$0 

$2,620,760 

$3,286,764 

$18,723 

$3,161,604 

$0 

$9,611,312 

Non-Valid 

Bond Claim 

Amount 

$0 

$39,765 

$0 

$0 

$0 

$0 

$76,306 

$210,370 

$390,479 

$747,113 

$47,025 

$20 

$0 

$0 

$0 

$1,936,554 

$292,104 

$1,306,395 

$0 

$667,043 

$0 

$5,713,174 

Valid versus Non-Valid Bond and Trust Claims. Just under half (48%) of the packer 

trust claims during the study period were valid. Trust and bond claims may be deemed not valid 

for several reasons. The most common reason is that the claim was filed late. A trust claim is not 

valid if it is not filed within 30 days of the transaction for which payment is due. 

73 Bond claims 

are not valid if not filed within 60 days of the transaction.

74 Over 70 percent of the non-valid trust 

73 7 U .S.C. I 96(b ). " ... the unpaid seller shall lose the benefit of such trust if, in the event that a payment instrument 

bas not been received, within thirty days of the final date for making a payment under section 409, or within fifteen 

business days after the seller has received notice that the payment instrument promptly presented for payment has 

been dishonored, the seller has not preserved his trust under this subsection." 

74 9 CFR 201.33(d). "The surety on the bond or the trustee on the bond equivalent, as the case may be, shall not be 

liable to pay any claim ifit is _not filed in writing within 60 days'from the date of the transaction on which the claim 

49 
claims were not valid due to timeliness. Nearly 57 percent of the non-valid packer bond claims 

were not valid because they were not timely filed. The remaining packer trust and bond claims 

were not valid for other reasons. 

Trust and bond claims are not valid if they are not for livestock purchases. For example, 

claims are sometimes filed for freight or trucking charges or other non-livestock amounts owed. 

During the study period, one packer filed a trust claim for meat that was not delivered. Because 

this claim was for meat and not for livestock, it was not a valid claim. Claims can also be deemed 

invalid even if they are for livestock, for instance ifthere is a dispute about the quality, weight, or 

some other attribute of the livestock. 

Claims are also invalid when filed against the wrong entity. In some cases, there is 

uncertainty surrounding the ownership of the livestock in question, resulting in a claim against a 

party that was not in fact liable for the purchase amount. Sometimes a claimant will file bond 

claims on both the principal buyer oflivestock and the principal' s agent, if the buyer was a bonded 

market agency buying on commission (a BOC or order buyer). In those situations, the trustee 

determines which of the claims is valid. 

Evaluating the Effectiveness of the Packer Trust. Table 10 below shows unpaid sellers' 

recovery rate as a percentage of valid claims. Unpaid sellers often file trust and bond claims even 

if they know they are likely not valid. They do this hoping the packer or trustee will agree to pay 

the claims anyway. This is why some recovery rates on particular claims are greater than 100 

percent - the valid portion plus some or all of the invalid portions were paid. 

is based or if suit thereon is commenced less than 120 days or more than 547 days from the date of the transaction 

on which the claim is based." 

so 
Measuring only the claims that are not withdrawn75 results in a measure of recoveries that 

is lower than the measure for all claims. Claims are withdrawn when the claimant gets paid. 

Therefore, excluding withdrawn claims suggests a lower recovery rate than actual recoveries. 

Claim amounts remaini~g unpaid, especially in the case ofbonds, usually result because the packer 

does not have the resources to pay. Remaining trust or bond claims are the last resort for sellers to 

receive payment, and therefore reflect those outcomes where the seller was most likely to remain 

unpaid, lowering the measure of recovery rate in the analysis through selection bias. 

The total of amounts claimed may not reflect actual total amounts owed, as not all sellers 

file claims. Some unpaid sellers may use the threat of filing a bond or trust claim as leverage in 

negotiating payment with a packer without actually filing a claim. In this way, packer trust and 

bond provisions provide a deterrent effect, albeit an unmeasurable one. 

Finally, reported recoveries are not always precise because packers and sellers sometimes 

agree on a payment plan. Payments made long after the claims have been withdrawn or after the 

bond has paid out may not be captured in PSD records. 

Table 10 also shows the amounts paid out by the packer trusts and bonds in the 21 instances 

studied. Packers will pay on valid claims, if they can, to avoid bond claims and subsequent bond 

terminations. In the four incidents where bonds paid out, claimants were unable to make full 

recovery on valid trust claims. 

75 This is the reporting method used in the PSD annual reports. Claims that are withdrawn are not included in PSD 

reports. 

51 
Table 10. Trust and Bond Claim Recoveries 

Incident# Valid Valid Paid by Paid by Unpaid Recovery 

Trust Bond Trust and Bond Valid Rate on 

Claim Claim Other76 Amount Valid 

Amount Amount Claims77 

#1 $31,627 $31,627 $31,627 $0 $0 100.0% 

#2 $0 $0 $0 $0 $0 NIA 

#3 $0 $0 $0 $0 $0 NIA 

#4 $112,789 $0 $112,789 $0 $0 100.0% 

#5 $114,992 $19,641 $114,992 $0 $0 100.0% 

#6 $19,781 $0 $19,781 $0 $0 100.0% 

#7 $0 $0 $0 $0 $0 NIA 

#8 $0 $0 $0 $0 $0 NIA 

#9 $332,663 $369,970 $617,425 $0 ($247,455) 166.9% 

# 10 $0 $0 $0 $0 $0 NIA 

# 11 $0 $0 $0 $0 $0 NIA 

# 12 $12,124 $38,373 $7,259 $20,000 $11,114 71.0% 

# 13 $79,564 $0 $79,564 $0 $0 100.0% 

# 14 $0 $22,516 $22,516 $0 $0 100.0% 

# 15 $0 $41,334 $41,334 $0 $0 100.0% 

# 16 $0 $0 $0 $0 $0 NIA 

# 17 $1,846,226 $2,620,760 $2,812,336 $0 ($191,576) 107.3% 

# 18 $624,783 $3,286,764 $625,033 $525,000 $2,136,731 35.0% 

# 19 $18,723 $18,723 $0 $10,000 $8,723 53.4% 

#20 $1,553,315 $3,161,604 $1,720,097 $695,000 $746,507 76.4% 

# 21 $0 $0 $0 $0 $0 NIA 

Total $4,746,587 $9,611,312 $6,204,753 $1,250,000 $2,464,044 75.2% 

The total amount paid by the packer trust was 29.4 percent greater than the amount of valid 

trust claims. That trust payouts exceed valid trust claims is not surprising, given the discussion 

above about packers wanting to stay in business and keep their bonds, and the fact that bond claims 

exceeded trust claims by a sizable portion. 

Two incidents that resulted in sellers receiving recoveries from the packer that exceeded 

the amount of valid bond claims were cases where there was no obligation for the bond or trust to 

76 ln incidents 14 and 15, the unpaid sellers fil ed only bond claims. Both packers paid the full amount claimed from 

their own funds. Though not technically payments from the trust, these amounts are included as trust recoveries and 

total recoveries in the analysis. 77 Recovery rates are calculated on the higher of valid bond or valid trust claim. 

52 
pay out on a portion of the claims, but the packer elected to pay some of the non-valid claims 

anyway. This can occur for a variety of reasons. For example, the packer may wish to maintain 

its reputation or goodwill, or to avoid future litigation and associated costs. 

Payouts on packer bonds are tempered by the fact that, in most cases, the trust payments 

have already been made by the time the bond payout is determined. The bond payout is based on 

the remaining amount of the valid claims, if any, that remain unpaid after the trust payout, and is 

generally the unpaid sellers' last recourse for receiving payment. Table 11 below shows that during 

the study period, packer bonds paid out 13 percent of the total valid bond claim amount. 

Table 11 Recovery from Packer T rusts andPacker Bonds 

Total Trust Payout: $6,204,753 Total Packer Bond Payouts: $1,250,000 

Total 

Trust 

Claims 

Trust 

Payout 

(percent 

of total) 

Valid 

Trust 

Claims 

Trust 

Payout 

(percent 

of valid) 

Total Bond 

Claims 

Bond 

Payout 

(percent 

of total) 

Valid 

Bond 

Claims 

Recoveries 

(percent 

of total) 

$9,858,494 62.9 $4,746,587 130.7 $15,324,486 8.2 $9,611,312 13.0 

Because of the interactions between the bond and trust, the appropriate way to evaluate the 

effectiveness of the bond and trust protections is to look at total recoveries. See Table 12 below. 

Total payments made to the sellers from the packer bonds and trust assets combined were in excess 

of total valid trust claims and were 77.6% of the valid bond claims. The best representation of 

recovery compares the higher of the valid trust or bond claim with total recoveries, which during 

the study period was 75.2%. 78 . 

78 Note that the higher amount is more relevant than the sum of valid bond and trust claims, since bond and trust 

claims typically overlap, as a claimant may file on both the trust and bond for the same transaction. Bond claims are 

usually higher because of the longer period of time allowed for valid claims (60 days for bond claims, and 30 days 

for trust claims.) 

53 
Table 12. Total Recoveries (Bond, Trust and Other) from Packer Trust 

and Bond Claims Combined79 

Total Trust and Bond Recoveries: $7,454,753 

Total Trust and Trust Payout Trust Payout Total Valid Trust Bond Claims and Bond Claims Combined (percent of total) (percent of valid)

$15,890,619 46.9 $9,918,796 75.2 

Because of the interaction between the trust and bond protections, one cannot assume that 

the impact of the packer trust is the difference between bond payouts and trust payouts. Had the 

packer trust protections not been in place, packer bond payouts may have been higher to make up 

some of the difference. There is no way to know for certain what bond claims or bond payouts 

would have been under that scenario. However, one way to evaluate this hypothetical question is 

to look at total bond coverage as potential bond payouts. See Table 13 below. If one assumes the 

bond would have paid out the full amount of total valid bond claims up to the available amount of 

bond coverage, total potential recoveries from bond payouts, had the packer trust not been in place, 

would have been $2,119,823 , which is $5,334,930 less than the actual payouts of $7,454,753. 

The Sam Kane Beef Processors, LLC, Default - 2016-2019. Numerous commenters, 

including both supporters and opponents of the dealer statutory trust concept, raised the matter of 

Sam Kane Beef Processors, LLC, in their comments. Kane was a meat packer operating in Corpus 

Christi, Texas. Livestock sellers filed trust claims against Kane starting in September 2016. 

Twelve claimants, consisting of feedlots and producers, filed valid trust claims. Claims continued 

through January 2017, when Kane and the USDA entered into a consent decision and order for 

violations ofthe P&S Act. The order, effective January 17, 2017, required Kane to cease and desist 

from failing to pay timely for its livestock purchases. At that time, valid trust claims totaled 

79 Total claims are based upon the higher of the trust or bond claims for each packer default incident. 

54 
$14,092,732. The full amount of those claims was paid pursuant to the packer statutory trust. 

Claims were not filed against Kane's $3.5 million surety bond. 

Trust claims began again on February 22, 2017, after Kane violated the consent decision 

and Secretary's order. Kane continued to operate its meat packing business and paid many of the 

new trust claims. Kane paid trust claims on a "rolling" basis, frrst-in-frrst-out (FIFO). As claimants 

were paid, they withdrew their claims, often only to file new claims later for new transactions that 

were not paid. This process continued until June of 2018, at which point Kane stopped paying 

claims and paid for new purchases through its agent. By that time, total trust claims filed since 

February 2017 amounted to $159,869,490 from 114 claimants. Most ofthe trust claims were valid. 

Paid claims over this period totaled $124,644,500. Claimants that did not receive payment reached 

a settlement with Kane that included appointment ofa chief restructuring officer and establishment 

of a payment plan. 

Kane soon defaulted on a $20 million payment due per the payment plan, and the federal 

court assigned an independent receiver. Some of the unpaid sellers also filed valid bond claims. 

The Court ordered that Kane' s current bond, a $3 .5 million surety bond, be paid out in full to 28 

unpaid bond claimants, prorated based on their outstanding unpaid claims as ofJune of2018. Kane 

also made a court-ordered payment of $500,000 on August 8, 2018, to unpaid trust claimants. As 

part of the receiver's arrangement for Kane to continue operating, another bond equivalent, this 

time a TF A in the amount of$3 million, was put in place with funds lent by Compass Bank (BBV A 

Compass). The Court-assigned independent receiver was named as the trustee for the TFA. 

After Kane filed for bankruptcy protection in January 2019, sellers continued to file new 

trust and bond claims on late 2018 and early 2019 transactions. These trust and bond claims totaled 

$1 ,163,864, of which $1 ,131 ,730 were deemed valid by the receiver / TFA trustee and were paid 

55 
by the TFA. These trust claims were still technically part of the statutory trust that began in 

February 2017. The bond claims were on a the new bond equivalent (the $3 million TFA), and the 

claimants were paid 100 percent oftheir valid claims from the TF A. 

As of June 30, 2019, the end date of the study period, there remained unpaid trust claims 

in the Kane case. All valid trust claims against Kane totaled $159,869,490. The packer statutory 

trust paid $124,644,500 on a rolling (FIFO) basis, the court ordered another $500,000 payment, 

and the first bond paid out $3,500,000. Thus, 80 percent of valid trust claims were paid, leaving 

20 percent or $31 ,224,991 of valid trust claims unpaid. 

On September 20, 2019, Kane, its finance company, and the trust claimants (referred to as 

"the Feeders") filed a Settlement Release Agreement with the Bankruptcy Court for the Southern 

District of Texas. 80 Under the Agreement, the Feeders receive $12,702,370.33 of "Debtor Held 

Receivables" in the possession of Kane, and at least $1,675,826.29 of "Collected Receivables" in 

the possession of the finance company. In addition, the finance company must forward to the 

Feeders any additional livestock receivables that come into its possession. 

The Feeders are granted exclusive control of, and standing to pursue, all of Kane ' s prepetition claims and causes of action. The Feeders also retain their disgorgement81 actions against 

third parties who may have come into possession of trust assets. 

80 The Settlement Agreement between Kane and the trust claimants occurred after the end of the study period for 

this report. Information regarding the agreement is provided so the reader has as complete information as 

possible. 

81 Disgorgement is the act of giving up something (such as profits illegally obtained) on demand or by legal 

compulsion. Black's Law Dictionary (10th ed. 2014: Bryan A. Gamer, ed.) p. 568. 

56 
Table 13. Potential Recoveries from Packer Bonds 

Inci- Packer Total Max Valid Max Total Total Difference 

dent Bond Claim Claim Actual Potential 

# Coverage Amount82 Amount Recovery Recovery83 

#1 $84,500,000 $31,627 $31,627 $31,627 $31,627 $0 

#2 $45,000 $39,765 $0 $0 $0 $0 

#3 $0 $85,778 $0 $0 $0 $0 

#4 $0 $112,789 $112,789 $112,789 $0 $112,789 

#5 $20,000 $114,992 $114,992 $114,992 $20,000 $94,992 

#6 $50,000 $19,781 $19,781 $19,781 $19,781 .$0 

#7 $10,000 $76,306 $0 $0 $0 $0 

#8 $1,300,000 $210,370 $0 $0 $0 $0 

#9 $30,000 $928,593 $369,970 $617,425 $30,000 $587,425 

# 10 $795,000 $747,113 $0 $0 $0 $0 

# 11 $10,000 $47,025 $0 $0 $0 $0 

# 12 $20,000 $38,393 $38,373 $27,259 $20,000 $7,259 

# 13 $305,000 $79,564 $79,564 $79,564 $79,564 $0 

# 14 $100,000 $22,516 $22,516 $22,516 $22,516 $0 

# 15 $155,000 $41,334 $41,334 $41,334 $41,334 $0 

# 16 $10,097,500 $1,936,554 $0 $0 $0 $0 

# 17 $695,000 $2,912,865 $2,620,760 $2,812,336 $695,000 $2,117,336 

# 18 $525,000 $4,593,159 $3,286,764 $1,150,033 $525,000 $625,033 

# 19 $10,000 $18,723 $18,723 $10,000 $10,000 $0 

#20 $625,000 $3,828,646 $3,161,604 $2,415,097 $625,000 $1,790,097 

# 21 $0 $4,727 $0 $0 $0 $0 

Total $99,292,500 $15,890,619 $9,918,796 $7,454,753 $2,119,823 $5,334,930 

Evaluating the Effectiveness of the Poultry Statutory Trust. PSD records show 93 live 

poultry dealers operating subject to the P&S Act. These 93 entities range from large, vertically 

integrated companies to the small live bird markets and spent fowl dealers84. 

The poultry industry is dominated by large, vertically integrated firms that primarily obtain 

live poultry under poultry "growing arrangements" with contract growers or by marketing 

82 Maximum claim amounts are calculated as the higher of bond or trust claim. This implies that in the absence of 

the trust provisions, claimants would have filed bond claims for all amounts on which they actually filed trust 

claims. 83 Calculated as the lesser of the bond coverage or total valid claim amount. 84 Spent fowl are hens that were raised for commercial egg production, but are no longer viable in that capacity, and 

are destined for slaughter. See 7 U.S.C. 2702. 

57 
agreements with independent producers. The term vertical integration means one company owns 

and controls multiple stages of production, such as the breeder flocks, hatchery, grow-out 

operations, processing plant, feed mill, transportation, and marketing. In 2018, the top five 

vertically integrated firms controlled about 61 % of the poultry industry. The top ten firms 

controlled about 82% of the industry. The existence of a vertically integrated and consolidated 

industry plays a significant role in explaining why there have been few poultry company failures, 

and in turn, so few poultry statutory trust claims. 

Table 14 shows trust claims filed on live poultry dealers during the study period. Five 

sellers or growers filed trust claims against four live poultry dealers during this period. Only one 

of the incidents involved a valid poultry trust claim that was paid pursuant to the statutory trust. 

Another incident resulted in payments to claimants, even though the claims were not valid. 

T able 14 POU lt :ry Trust Claims . ; 0 co t b er 1 , 2013 - J une 30 2019 ' Trust Number Total Non-Valid Valid Paid by Paid by Recovery 

Claim of Trust Trust Amount Amount Trust Other Rate on 

Incident Claims Claim Valid 

Number Filed Amount Claims 

1 2 $3,052,734 $3,052,734 $0 $0 $0 NIA 

2 1 $1,579,548 $1,340,207 $239,341 $0 $0 $0.0% 

3 1 $82,840 $0 $82,840 $82,240 $0 $100.0% 

4 1 $290,914 $290,914 $0 $0 $47,000 NIA 

Total 5 $5,006,036 $4,683,855 $322,181 $82,840 $47,000 $40.3% 

The non-valid claims were not valid for various reasons. In some instances, part of the 

claim was timely filed, but the entire claim was not valid because it did not involve cash sales of 

poultry. In other incidents, a significant number of the claims were not valid because they were 

not timely filed. The remaining timely-filed claims were not paid because the live poultry dealer 

dissipated the trust funds, i.e., the live poultry dealer did not hold the funds in trust for the benefit 

of unpaid sellers or growers, and instead used those funds for some other purpose. 

58 
The Perishable Agricultural Commodities Act Statutory Trust. PACA was enacted in 

1930 for the purpose ofpromoting fair trading practices in the marketing ofperishable agricultural 

commodities.85 The law was designed to protect producers, many of whom entrust their products 

to buyers or commission merchants who may be thousands of miles away, and depend upon the 

buyer's business acumen and fair dealing for payment. 86 PACA requires a covered "dealer" to 

"promptly pay" for the purchase of perishable agricultural commodities. Perishable agricultural 

commodities include fresh and frozen fruits and vegetables. 87 

A "dealer" for P ACA purposes is any person engaged in the business of buying or selling 

in wholesale or jobbing quantities88 in commerce, and includes (1) jobbers, distributers, and other 

wholesalers; (2) retailers purchasing more than $230,000 of produce during a calendar year; and 

(3) growers who market produce grown by others. The term "dealer" does not include persons 

buying produce, other than potatoes, for canning and/or processing within the State where grown, 

whether or not the canned or processed product is to be shipped in interstate or foreign commerce, 

unless such product is frozen, or packed in ice, or consists of cherries in brine. 89 

Prompt payment under P ACA has different meanings depending upon the nature of the 

transaction and ranges between 5 and 30 days from a triggering event. 90 Parties to a transaction 

can elect to use different times ofpayment than those set forth in P ACA regulations, as long as the 

agreement is first put in writing and maintained in their records. 

85 Consumers Produce Co. , Inc. v. Volante Wholesale Produce Inc., 16 F3d 1347, 1377-78 (3d Cir. 1994). 86 H.R. Rep. No. 1196 (1955), reprinted in 1956 U.S.C.C.A.N. 3699, 3701. 87 See the USDA AMS PACA webpage for a list of covered commodities. AMS notes that given the scope of the 

produce industry, some covered commodities may not appear on the list. 

https :/ /www .ams. usda. gov/sites/ defau lt/fi !es/med ia/Commod i ties%20Covered%2 0by%2 0 PA CA. pdf 88 "Wholesale or jobbing quantities" means aggregate quantities of all types of produce totaling one ton (2,000 

pounds) or more in weight in any day shipped, received, or contracted to be shipped or received. 7 CFR 46.2(x). 89 7 CFR 46.2(m). 90 7 CFR 46.2(aa). 

59 
From the time of its enactment until it was amended inl 984, P ACA had two primary tools 

for protecting sellers ofperishable agricultural commodities. First, it prohibited certain conduct by 

commission merchants, brokers, or dealers,

91 and made those entities liable to injured parties for 

the full amount of damages if they were found to have violated those prohibitions.92 Second, it 

required any person carrying on the business of a commission merchant, dealer, or broker to obtain 

a license from USDA that was revocable upon a determination that the licensee engaged in 

prohibited conduct. 93 In addition, any person doing business without the required license could be 

assessed monetary civil penalties.94 

The PACA statutory trust provisions were enacted as amendments to PACA in 1984. 

Congress determined that produce sellers were being put at risk by financing practices in use at 

that time. In support of the amendments, Congress stated, " [i]t is hereby found that a burden on 

commerce in perishable agricultural commodities is caused by financing arrangements under 

which commission merchants, dealers, or brokers who have not made payment for perishable 

agricultural commodities purchased, contracted to be purchased, or otherwise handled by them on 

behalf of another person, encumber or give lenders a security interest in such commodities, or on 

inventories of food or other products derived from such commodities, and any receivables or 

proceeds from the sale of such commodities or products, and that such arrangements are contrary 

to the public interest. ..."95 

The P ACA statutory trust requires dealers to hold the proceeds of the sale of perishable 

commodities for the benefit ofthe unpaid seller until full payment is made. 

96 The trust is a floating, 

91 7 U.S.C. 499b. 92 7 U.S .C. 499e(a), (b). 93 See 7 U.S.C. 499c, 499d, 499h. 

94 7 U.S.C. 499c. 

95 7 U.S.C. 499e(c){l). 

96 7 U.S.C. 499e(c)(2). 

60 
non-segregated trust comprised of the perishable agricultural commodities purchased from the 

suppliers, all inventories of food or other products derived from the perishable agricultural 

commodities, and receivables or proceeds from the sale of the commodities or products. 97 

Unpaid sellers must give written notice oftheir intent to preserve their rights under the trust 

within thirty calendar days after payment must be made or they lose the benefits of the trust. 98 In 

a provision unique to P ACA, licensees are able to use billing or invoice statements to give notice 

of their intent to preserve the trust. In such cases, the bill or invoice must include on its face the 

following: "The perishable agricultural commodities listed on this invoice are sold subject to the 

statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 

U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all 

inventories of food or other products derived from these commodities, and any receivables or 

proceeds from the sale of these commodities until full payment is received. "99 Contrast this with 

the Packer and Poultry trusts, in which unpaid sellers preserve their trust rights by giving written 

notice to the packer and by filing notice with the Secretary. 

Livestock dealers create their own purchase and sales invoices. Livestock sellers may not 

have the option to include language preserving their trust rights on the dealer' s invoice. This 

suggests that the best way for sellers to preserve their trust rights under a dealer trust would be the 

same way that sellers preserve their rights under the packer and poultry trusts - by giving written 

notice to the packer and by filing notice with the Secretary. 

Just as the defaulting packer or live poultry dealer is the statutory trustee in the P&S Act 

statutory trusts, the statutory trustee under the P ACA trust is the delinquent "commission 

97 Id. 

98 7 U.S.C. 499e(c)(3). 99 7 U.S.C. 499e(c)(4). 

61 
merchant, dealer, or broker." 100 As under the P&S Act statutory trusts, when a produce dealer is 

in bankruptcy, P ACA trust assets are excluded from the bankruptcy estate. Those assets are not 

available for distribution to secured creditors. Unpaid suppliers have an interest in the trust corpus 

superior to the interest of any other lien or secured creditor. 101 This is because section 541 of the 

Bankruptcy Code specifies that property in which the debtor holds only legal title, and not an 

equitable interest, is not considered part of the bankruptcy estate. 102 The corpus, or principal, of a 

secured P ACA trust is an equitable interest, which keeps it from being included in the debtor's 

bankruptcy estate. 103 

Unlike the P&S Act statutory trusts, Congress included specific remedial language for the 

P ACA statutory trust: "The several district courts of the United States are vested with jurisdiction 

specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) 

actions by the Secretary to prevent and restrain dissipation of the trust. 104 As a result, there is little 

financial burden on the USDA. Produce sellers enforce their rights by bringing suit in the U. S. 

District Courts. AMS's PACA Division describes the PACA statutory trust as a "self-help tool" 

that requires little or no need for USDA involvement. Trust beneficiaries may file an action in U.S. 

District Court to enforce payment from the trust immediately following a buyer's failure to pay 

promptly. If the debtor is bankrupt, trust beneficiaries should file their claims for payment with 

100 7 U.S.C. 499e(c)(2). 101 See Consumers Produce Co., Inc. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1379 (3d Cir. 1994); In re 

W.L. Bradley Co., Inc., 75 B.R. 505, 509 (Bankr. E.D. Pa. 1987) (quoting In re Prange Foods, Corp., 63 B.R. 211, 

214 (Bankr. W.D. Mich. 1986). 102 11 U.S .C. 54l(d). 103 East Coast Potato Distrib. v. Grant (In re Super Spud, Inc.), 77 B.R. 930, 931 (Bankr. M.D. Fla. 1987); see also 

In re Fresh Approach, Inc., 51 B.R. 412, 419 (Bankr. N.D. Tex. 1985). 104 7 U.S.C. 499e(c)(5). 

62 
the bankruptcy court." 105 USDA does, however, retain authority to prevent and restrain dissipation 

of trust assets. 

Evaluating the Effectiveness of the PACA Statutory Trust. AMS's PACA Division, 

which administers the P ACA regulations, is not directly involved in the statutory trust process, 

and therefore does not maintain data on trust claims and recoveries. However, the PACA Division 

estimates that hundreds of millions of dollars have been recovered by produce sellers as a result of 

the PACA statutory trust. 106 The three largest payouts alone, involving Fleming Foods, 107 Winn 

Dixie Stores,

108 and AmeriServe Food Distribution,109 totaled almost $100 million. Fruit and 

vegetable industry representatives estimate that more than $1 billion has been collected as a direct 

result of the P ACA trust provisions. 

110 

This study can speak in general terms as to the effectiveness of the P ACA statutory trust 

using references and anecdotes from the industry. Overall, the PACA statutory trust is highly 

regarded, considered a "very powerful tool which when used properly, and gives produce sellers 

a unique and unprecedented opportunity to collect its delinquent accounts, especially when a buyer 

is on the verge of going out of business."' 11 "The provisions of the PACA trust afford the unpaid 

seller a powerful means of recovery to ensure the public of a constant supply of perishable 

agricultural commodities."' 12 Additional industry views on the PACA statutory trust are available 

in the Appendix to this report. 

105 P ACA Fact Finder Brochure. Available at 

https :/ /www .ams. usda. gov/sites/ defaul t/fi les/media/P A CAF actF ind er Brochure. pdf 106 81 FR 90255. 107 In 2003, The Fleming Companjes paid over $40 million to PACA Trust creditors. 108 In 2005, PACA Trust creditors received over $20 million in Winn Dixie's bankruptcy. 109 In 2000, AmeriServe Food Distribution paid approximately $30 million in PACA claims. 11 0 PACA Fact Finder Brochure. 111 Meuers Law Firm, P.L., Naples, FL, https://www.meuerslawfinn.com/Articles/Using-the-Paca-Trust-to-CollectPast-Due-Invoices.shtml 

11 2 Oleksa, Michelle G., Protecting the Power of the PACA Trust: Contemplating the Effects ofthe Bona Fide 

Purchaser Def ense, 8 San Joaquin Agric. L. Rev. 173 (I 998). 

63 
Trustee and Independent Trustee. In the packer and poultry statutory trusts, the trustee 

is the packer/poultry dealer who failed to pay for livestock/poultry. Likewise, the statutory trustee 

under the P ACA trust is the delinquent "commission merchant, dealer, or broker." 113 The trustee 

has the fiduciary duty to hold cash, inventory and receivables in trust for the benefit of trust 

claimants. 

An independent trustee would handle the trust in an orderly manner that ensures all 

claimants are protected equally. An independent trustee would ensure equitable payments between 

claimants and likely avoid preferential payments and dissipation of trust assets. However, an 

independent trustee would likely be paid for services from the trust, which would reduce assets 

available for payout to claimants. 

Though trust dissipation is a violation of the Act, PSD lacks authority to recover funds 

from the paid parties. Claimants must file suit against the trustee and entities receiving preferential 

payments - typically a legal battle, where the cost may outweigh the benefit. 

Analysis: Overall, the packer and poultry statutory trusts have significantly contributed to 

the recovery of previously unpaid funds to livestock and poultry sellers. Data analysis shows that 

while the number ofpacker and poultry statutory trust events during the study period was relatively 

small, the statutory trusts have been effective tools for seller financial protection. During the study 

period, packer trusts paid out 13 0. 7% of valid trust claims, and packer bonds paid out 13.0% of 

the total valid bond claims. The greatest impediment to recovery for sellers is not filing claims 

timely. Extending the period for filing claims could increase the number of valid claims, but it 

could also diminish the funds available for payout on those claims. One ofthe greatest protections 

afforded under the packer and poultry statutory trusts is placing livestock sellers and poultry 

113 7 U.S.C. 499e(c)(2). 

64 
growers in the position of secured creditors in cases of buyer bankruptcy. Of significant concern 

among commenters was the apparent ineffectiveness of the packer statutory trust in the Kane 

default and bankruptcy. PSD found that in Kane, the statutory trust paid 78% of the more than 

$150 million in valid claims, with disposition of just under 20% of claims still to be decided by 

the bankruptcy as of the end of the study period. Kane's continued operations were due, in part, to 

livestock sellers' desire to have an outlet for their cattle in that region. As a result, Kane continued 

to operate its meat packing business and paid trust claims on a "rolling" first-in-first-out (FIFO) 

basis. As claimants were paid, they withdrew their claims, only to file new claims for new 

transactions that were not paid. 

Anecdotal evidence indicates that the PACA statutory trust has been a highly effective 

means for protecting produce sellers, giving trust beneficiaries the ability to file an action in U.S. 

District Court to enforce payment from the trust immediately following a buyer's failure to pay 

promptly, and excluding trust assets from the bankruptcy estate, making them unavailable for 

distribution to secured creditors. While aggregated data on trust recoveries is not maintained, both 

AMS's PACA Division and public commenters suggest that produce sellers have benefitted by 

more than $1 billion since the statutory trust was enacted in 1984. 

Public Comment Summary: Commenters provided positive reviews of their personal 

experiences with the packer statutory trust and the PACA trust. Several commenters credited the 

trust provisions with saving their businesses during difficult situations where buyers failed to pay 

for their purchases. 

Negative comments stemmed from experiences with the Sam Kane packer failure and 

bankruptcy and commenters' perception that the packer statutory trust failed to protect livestock 

sellers. 

65 
On the question ofauthorizing the Secretary to appoint an independent trustee, commenters 

were somewhat indifferent. Most recognized that an independent trustee would likely provide 

better accounting oftrust assets, but they cautioned that funds available for seller recoveries could 

be reduced by trustee fees. 

Study Finding: Statutory trusts in other segments of agriculture are effective in impro:ving 

financial recoveries for unpaid sellers of agricultural products. Similar results could be expected 

under a livestock dealer statutory trust. Authorizing the Secretary to appoint an independent 

trustee could improve the trust claim payout process, but payment of trustee fees could reduce 

funds available for recoveries to livestock sellers. 

VIII. Seller Recovery in The Event of a Livestock Dealer Payment Default 

Study Element: Examine how the establishment of a livestock dealer statutory trust 

would affect seller recovery in the event of a livestock dealer payment default. 

Background and Analysis: The P&S Act requires dealers, market agencies and packers 

to pay in full for their livestock purchases by the close of the next business day following the 

purchase and transfer of possession of livestock. 1I4 An exception to the prompt payment 

requirement provides that the parties may agree in writing to extend the time for payment beyond 

the required period for delivering payment. 115 The Act provides an administrative remedy for nonpayment, which includes cease and desist orders, suspension ofregistrations where applicable, and 

114 7 U.S.C. 228b(a) 11 5 7 U.S.C. 228b(b) 

66 
civil penalties. 11 6 This administrative process does not authorize orders to pay or make restitution 

to unpaid sellers. 117 

While the Act requires dealers to pay by the close of the next business day, often the 

relationship between livestock dealers and farmers and ranchers may be casual and informal, to 

the extent that the seller does not insist on strict adherence to payment rules laid out in the Act. 

With a longstanding business relationship, the seller may allow more time for payment, seven days 

or more, for example. Auction markets may develop a relationship with a dealer, too, where they 

do not enforce next-day payment rules, but auction markets are constrained by custodial account 

requirements. If payment is not received from a buyer within seven days, the auction market will 

have to use its own funds to reimburse the custodial account, which could result in financial 

hardship for the auction market. 

In order to meet payment obligations, dealers need to maintain a stable financial position. 

This means a dealer needs access to credit such as a bank loan or a credit line to pay the seller in 

the next trade. Otherwise, when dealers take possession of livestock, they must be able to market 

the livestock promptly to generate revenue, which may be difficult. 

Livestock sellers encounter situations where dealers send payment several days late. 

Producers (sellers) file complaints with PSD on late payments; even producers with longstanding 

dealer relationships file complaints with PSD if payment is not received within the 'usual' 

11 6 7 U.S.C. 193 ; 7 U.S.C. 204; 7 U.S .C. 213(b). 11 7 Restitution to unpaid sellers can be achieved through enforcement actions by use of a consent decision, in which 

the accused party agrees to a sanction, usually while neither admitting nor denying the violations. The parties may 

agree to reduce the sanction (suspension or civil penalty) ifrestitution is paid. Another avenue for recovering 

damages is through a reparation proceeding as set forth in 7 U.S.C. 210. This provision allows persons who believe 

they have been the victim of an unreasonable or unjustly discriminatory action by a market agency or dealer to file 

a complaint with the Secretary against that market agency or dealer. After a hearing, either written or oral, the 

Secretary may issue an Order awarding damages. That Order is enforceable in federal court. 

67 
timeframe they are accustomed to with a particular dealer. Auction markets also file complaints 

of 'slow pay' when a dealer is paying for livestock more than a week after the purchase. 

Livestock producers and auction markets are not in a position to discern a dealer's financial 

condition, but banks have the ability to determine their credit-worthiness. With evidence of a 

deteriorating financial situation, a bank may call in a loan or freeze a dealer's credit line. Livestock 

dealers may continue to operate buying livestock, however, even though they do not have 

sufficient funds or access to credit to pay for livestock purchased. Meanwhile, sellers are unaware 

of the risks until the checks received as payment from the dealer are returned by the bank for 

insufficient funds . 

If the dealer's insolvency leads to bankruptcy, unpaid livestock sellers typically do not 

receive any advantage. In a bankruptcy proceeding, secured creditors are paid before unsecured 

creditors. A secured creditor is a lender that has a lien on certain assets of a borrower- in this case, 

the bank that issued credit to the dealer. 

Unsecured creditors are not eligible for reimbursement until the claims of all secured 

creditors have been settled. At that time, the unsecured creditors are paid on a pro rata basis along 

with all other creditors in the same classification. There are two types of unsecured creditors' 

claims - priority and nonpriority. Employee wages are considered priority unsecured claims. 

Claims of unpaid sellers are nonpriority unsecured claims. Hence, bankruptcy proceedings usually 

result in partial payments or perhaps no payments at all for unpaid producers and auction markets. 

Another disadvantage to unpaid sellers in bankruptcy is that payments made to livestock sellers 

within 90 days prior to the bankruptcy may be considered to be preferential transfers which must 

be paid back by the recipients. 

68 
Currently, recovery by an unpaid seller in the case of a livestock dealer payment default 

can be obtained by filing a claim on the dealer's bond. Recent bond claim and recovery data 

indicates total potential recoveries of 4 7 percent of valid claims if a dealer statutory trust were in 

place. 

The P&S Act requires most dealers, all market agencies, and those packers with annual 

livestock purchases of over $500,000 to maintain a bond or bond equivalent. 118 Dealers operating 

solely as packer buyers for packers with annual livestock purchases of over $500,000 are not 

required to maintain dealer bonds because packer buyer purchases are covered by the employing 

packer's bond and the packer trust provisions of the P&S Act. 

Dealer bonds must meet the conditions set forth in P&S regulations. 119 The condition 

clause 2 bond covers livestock purchases when the buyer purchases livestock for his own account 

or for the account of others. A number of registered livestock dealers also maintain condition 

clause 3 bonds. 12 

°Condition clause 3 bonds are required when a principal clears 121 other registrants 

buying livestock and thus is responsible for the obligations of those other registrants. 122 

A livestock seller is eligible to file a bond claim ifhe or she has not received payment from 

a dealer, market agency, or packer. Claims must be filed within 60 days of the date of the 

transaction for which payment has not been received. 123 To file a claim, unpaid sellers complete 

11 8 9 CFR 201.27. Bond equivalents include (1) a trust fund agreement governing funds actually deposited or 

invested, which are readily convertible to currency, or (2) a trust agreement under one or more irrevocable, 

transferable, standby letters of credit. 11 9 9 CFR 201.31 (b) sets forth the requirements for a condition clause 2 dealer bond. 120 9 CFR 201 .31 (c) sets forth the requirements for a condition clause 3 clearor bond. 121 Hartford Accident and Indemnity Co. v. Volin, 304 F:Supp. 289 (D. Minn., 1969). A clearing agency agrees to 

pay for livestock purchases made by specified clearees in consideration of a fee frequently calculated on a per-head 

basis. Clearees must be named upon the bond of the market agency providing the clearing services. (9 CFR § 

201.29(c)). 

122 9 CFR § 201.3 l(c). 123 Claims are filed with the surety company, if any, or the trustee, or the Administrator. Whichever receives the 

claim is required to notify the other party or parties as soon as practical. 

69 
and submit PSD Form 2110 (market agencies selling on commission) or 2120 [dealers, market 

agencies buying on commission (BOCs)] to a PSD office or to the trustee on the bond. 

Table 15 below summarizes bond claims filed on dealers and BOCs during the study 

period. 124 There were 82 instances of a nonpayment by a dealer or BOC that resulted in the filing 

of 184 bond claims during this period. The total dollar amount claimed was $26,020,417. Valid 

claims represented $22,228,654 ofthat total. In 19 of the 82 incidents of nonpayment, none of the 

bond claims were deemed valid. Almost half (48%) of the claims were filed by producers, and 

another 42% were filed by auction markets. The remaining claims were filed by other livestock 

dealers, a trucker, and a state beef council. 

Table 15. Claims on Dealer Bond and Recoveries 

Dealer Bond Number of Number of Total Claims Timely / Valid 

Amount125 Claim Incidents Claimants Claims 

$10,000 20 22 $514,175 $261,014 

$15,000 7 7 $417,334 $212,229 

$20,000 6 9 $344,795 $344,795 

$25,000-$50,000 15 30 $1,593,131 $1,228,994 

$50,000-$95,000 21 66 $3,224,969 $1,612,081 

$100,000 and over 13 50 $19,926,012 $18,569,540 

TOTAL 82 184 $26,020,417 $22,228,654 

Dealer Bond Paid by Bond Paid by Total Percent of Valid 

Amount Other Recovered Claims Recovered 

$10,000 $67,825 $198,771 $266,596 102.1% 

$15,000 $15,000 $163,855 $178,855 84.3% 

$20,000 $73,905 $169,764 $243,669 70.7% 

$25,000-$50,000 $88,095 $907,382 $995,477 81.0% 

$50,000-$95,000 $628,928 $489,510 $1,118,438 69.4% 

$100,000 and 

over $1,389,000 $6,249,608 $7,638,608 41.1% 

TOTAL $2,262,752 $8,178,890 $10,441,643 47.0% 

124 Additional detail regarding these claims is included in Appendix 4 to this report. 125 Two of the incidents in the $10,000 bond category involved dealers whose bonds had expired. For more detail, 

see Table 16. 

70 
Most of the bond claims were for dealer-purchased livestock. Seven of the instances 

involved purchases by a BOC, and one claim was on an auction market's dealer bond. Two 

additional bond claims were filed during the latter part of the period covered by the study and are 

not included in the analysis because the cases were still open as of June 30, 2019. 

As ~xplained earlier, dealers have an incentive to avoid bond payouts if they intend to 

remain in business. Unless it believes the claim is frivolous, the surety (or trustee or bank in the 

case of TF As or TA/LO Cs) must terminate the bond ( or withdraw the funds and cancel the TF A 

or T A/LOC) when a claim is filed. It is a violation of the Act for a dealer to purchase livestock 

without a bond. Once a claim is filed, dealers may attempt to convince the claimant to rescind 

their claim, usually by paying the claimant what is owed, or reaching an agreement on payment 

terms. In Table 15, the amount represented by "Paid by Other" is typically money paid by the 

dealer or BOC in addition to, or instead of, the bond proceeds. 

Valid versus Non-Valid Bond Claims. Bond claims may be deemed non-valid for various 

reasons. The most C<_?mmon non-valid claims are those filed more than 60 days after the transaction 

for which payment was due.

126 Nearly 60 percent of the non-valid claims ($2,122,517, or 56.0%) 

were not timely filed. The remaining dealer bond claims ($1 ,669,246, or 44.0%) were deemed 

non-valid for other reasons. 

The surety or trustee will deem bond claims not valid if the claims are not for livestock. 

For example, claims are sometimes filed for freight or trucking charges or other non-livestock 

amounts owed. Claims can be deemed not valid even if they are for livestock if there is a dispute 

126 9 CFR 201 .33( d). "The surety on the bond or the trustee on the bond equivalent, as the case may be, shall not be 

liable to pay any claim if it is not filed in writing within 60 days from the date of the transaction on which the claim 

is based or if suit thereon is commenced less than 120 days or more than 547 days from the date of the transaction 

on which the claim is based." 

71 
about the quality or weight of the livestock or some other dispute, especially if the relevant 

characteristics ofthe livestock are not verified, or the transaction is not adequately documented. 

Claims will be deemed invalid ifthey are filed on the wrong entity. In some cases, there is 

uncertainty surrounding the ownership of the livestock in question, resulting in a claim against a 

party that was not in fact liable for the purchase amount. Occasionally, a claimant has filed bond 

claims on both the principal buyer of livestock and the principal' s agent, if the agent was a BOC. 

In those situations, only one claim, depending on the circumstances, can be deemed valid. 

In two of the incidents, claims were deemed not valid because there was no valid bond 

coverage in place at the time of the transaction. In one incident, the dealer obtained a bond two 

weeks after the date of the transaction, and in the other incident, the dealer' s bond expired twelve 

days prior to the transaction, but the dealer paid the claim out of its own funds. 

One large claim was deemed not valid because it was filed by a buyer who paid for 

livestock but did not receive delivery ofthe livestock purchased. Dealer bonds protect only sellers 

of livestock who do not receive payment. In this particular case, the surety company paid out the 

full amount of the bond anyway. 

In the last two incidents described above, sellers received recoveries from the dealer or 

trustee on non-valid claims. There were a total nine incidents during the study period where total 

recoveries exceeded the amount of valid bond claims. These were cases where there was no 

obligation for the bond to pay out, but the dealer elected to pay anyway for a variety of possible 

reasons that PSD might expect, based on its experience with the industry. For example, the dealer 

may have wished to maintain its reputation or goodwill, or to avoid future litigation and associated 

costs. In the nine incidents studied, the dealer or trustee paid $424,509 in recoveries on non-valid 

claims. 

72 
Table 15 shows that during the study period, other sources, usually the dealer, paid out 

$8,178,890 in valid and non-valid bond claims, which was over 3.5 times the amount paid out by 

the bonds. Claimants received a total of $10,441 ,643 in total recoveries in 66 incidents of bond 

claims during the study period. 

What Effect would a Dealer Statutory Trust have on Seller Recovery? It is common 

to see bond payout rates cited as 10 to 15 percent or even lower when livestock seller recovery 

rates are discussed. These numbers do not provide the full picture; they represent only bond 

payouts as a percent of total claims. In Table 15, the percentage of the valid claims that were paid 

from either the dealer bonds or other funds available from the dealer was 4 7 percent of the valid 

claim amount. 

The difference between the bond payout and total recoveries could be an indicator of the 

effectiveness of a dealer statutory trust if one were to be enacted. This determination is made based 

upon several assumptions. First, the source for most of the difference between the bond payout 

and total recoveries is the dealer. As noted, the dealer has an incentive to avoid bond payouts and 

to convince the claimant to withdraw their claim if the dealer intends to remain in business. This 

is usually accomplished by paying the claimant if the dealer is able to do so. The funds that the 

dealer has on hand to pay the sellers would likely be deemed trust assets for purposes of a dealer 

statutory trust and would be required to be paid to the unpaid seller. Second, PSD assumes the 

sellers who file timely bond claims today would likely be the sellers who file timely trust claims 

under a dealer trust. It is unlikely that claimants who didn't file bond claims, or who filed late bond 

claims, would file timely trust claims, so the relationship between the bond payout and total 

recoveries in the study could be expected under a dealer statutory trust. 

73 
Dealers frequently pay bond claims, both valid and non-valid, from their own funds. In 46 

ofthe 82 incidents studied, the dealer paid some or all ofthe bond claim from their own funds. In 

those 46 instances, the dealers paid $8,178,890 from their own funds on $16,814,128 in total bond 

claims, of which $15,135,353 was valid. The resulting recovery rates for those 46 instances was 

48.6 percent of total bond claims and 54.0 percent of valid bond claims. 

Using bond payout and total recovery data, Table 16 illustrates the potential recovery 

amount that could be attributable to a dealer statutory trust. As a percentage of total valid claims, 

a dealer statutory trust could have resulted in recoveries of at least $8,178,891 , or 36.8% of the 

amount owed. Actual recovery would likely have been higher in the case of a dealer statutory trust 

for the simple reason that federal law would have required holding assets in trust and using those 

assets to pay unpaid sellers. 

T able 16 Po t en f ia1Recovery froma Dea 1 er St atutory Trus.t 

Total Claims: $26,020,417 Total Valid Claims: $22,228,654 

Bond 

Payout 

Bond 

Payout 

(percent 

of total) 

Total 

Recoveries 

Recoveries 

(percent 

of total) 

Bond 

Payout 

Bond 

Payout 

(percent 

of total) 

Total 

Recoveries 

Recoveries 

(percent 

of total) 

2,262,752 8.7 10,441,643 40.1 2,262,752 10.2 10,441,643 47 

Recovery potentially attributable to a Recovery potentially attributable to a 

dealer statutory trust: 31.4% dealer statutory trust: 36.8% 

In every incident involving bond claims for which at least some of the claims were valid, 

claimants recovered some amount, either from the bond or from other sources. Over half ( 42 of 

82) of the claim incidents resulted in full recovery of the unpaid amounts, including four where 

the amount recovered exceeded total valid claim amount. Two-thirds ( 42 of 63) of the claim 

incidents involving valid bond claims resulted in full recovery ofthe unpaid amount. 

Public Comment Summary: Comrnenters reported that current law is insufficient to 

protect livestock sellers and that a dealer statutory trust would improve recoveries following dealer 

74 
defaults. Commenters noted that both meat packers and livestock auction markets are covered by 

trusts and bonds, but livestock dealers carry only bonds to protect sellers. 

Commenters opposing a dealer statutory trust argued that a statutory trust would be 

ineffective and discussed a recent packer failure (Kane) to illustrate their concerns. 

Study Finding: Establishment of a livestock dealer statutory trust could improve 

livestock seller recovery in the event of a dealer default. Total recoveries under a statutory trust 

would likely be higher than what is achievable with only bond payouts. In cases of bankruptcy, 

livestock sellers would realize improved recovery compared to their potential recovery as 

unsecured creditors. 

IX. Preferential Transfers in Bankruptcy 

Study Element: Analyze how the establishment of a livestock dealer statutory trust 

would affect the treatment of sellers of livestock as it relates to preferential transfer in 

bankruptcy. 

Background and Analysis: To analyze how the establishment of a livestock dealer 

statutory trust would affect the treatment of sellers of livestock as it relates to preferential transfer 

in bankruptcy, PSD considered public comments and examined bankruptcy law and the 

preferential transfer litigation involved with the Eastern Livestock Co., LLC (Eastern) bankruptcy 

case. 

Bankruptcy law includes a prov1s10n called the "Preferential Payment Rule," which 

provides that when a debtor pays a creditor within 90 days of filing bankruptcy, the creditor can 

be forced to pay all money received back to the bankruptcy estate for distribution to general 

75 
creditors. 127 The result of a preferential transfer can be devastating to creditors who may be 

livestock sellers that were paid by the debtor for their livestock. Creditors may have already 

disbursed those funds to their own creditors and would not have funds available to pay the 

bankruptcy court. 

Section 547 of the Bankruptcy Code is intended to place similarly situated creditors on 

equal footing by giving bankruptcy trustees ability to set aside certain transfers by debtors prior to 

bankruptcy, which may tend to prefer one creditor over another. Since these payments may prevent 

equitable distribution among creditors, it is the effect ofthe transaction, rather than the debtor' s or 

creditor' s intent, that is controlling. 

128 

If the bankruptcy trustee suspects a preferential payment has been made, he or she may file 

an adversary action in the Bankruptcy Court against the creditor for recovery of the alleged 

preferential payment. An adversary action lawsuit can also seek court costs and interest on the 

payment if it is deemed preferential. 

In the Eastern bankruptcy case, the trustee filed 116 adversary actions including 68 

preferential transfer claims.

129 The adversary cases citing violation of 11 U.S.C. 547 demanded 

over $29 million dollars from livestock industry payments or value of goods made by Eastern to 

livestock creditors during the time leading up to the bankruptcy. The majority of these actions 

were dismissed subject to terms of settlement agreements between the trustee and the defendants. 

The Eastern bankruptcy adversary actions highlighted a vulnerability of livestock sellers. 

Livestock producers, feedlots, dealers, and market agencies (i.e. auction markets, order buyers) 

127 1 I U.S.C. § 547 128 See, Barash v. Public Finance Corp., 658 F.2d 504 (7th Cir. 1981). 129 EASTERN LIVESTOCK CO., LLC, Debtor, Bankruptcy No. 10-93904-BHL-11 . [US Bankruptcy Court, S.D., 

Indiana, New Albany, Division], November 2010. 

76 
are unsecured creditors and are more typically subject to adversary actions involving preferential 

transfer because unsecured debt is easier to capture. 

One of the adversary actions in the Eastern case provides an overview of the preferential 

transfer issue, the trustee's claims, and possible defenses to be raised by the seller/creditor. 130 In 

Knauer vs. Krantz, the trustee alleged that a livestock seller received preferential payment from 

Eastern for 644 head of cattle purchased from Krantz and delivered around October 15, 2010. 

Krantz had three separate agreements in place for the cattle that were purchased under contract in 

August and September 2010. The cattle were delivered on or around October 15, 2010. Partial 

payments were received in August and September 2010 per the contract terms from Eastern. On 

October 18, 2010, checks were issued to Krantz for the balances due for the delivered cattle. On 

October 20, the checks were voided and a lump sum wire payment totaling $456,189.20 was made, 

the subject of the alleged "preferential transfer" allegations brought to the court by the trustee. 

Eastern accounts were frozen on or about November 2, 2010. The bankruptcy filing occurred on 

December 6, 2010. In July 2012, the trustee initiated the adversary action against Krantz. 

Krantz raised the defenses of contemporaneous exchange and ordinary course of 

business. 131 The "Ordinary Course of Business" defense is a commonly used defense m 

preferential transfer actions. 132 The rationale is that the payments were not efforts to reduce past 

indebtedness (at a greater amount than the creditor would receive pro rata in bankruptcy), but 

simply what had occurred between the creditor and vendor over a long period of business and part 

of their ongoing business. The defense requires that the payment (1) was on account of a debt 

130 James A. Knauer, Chapter J1 Trustee for Eastern Livestock Co., LLC. Vs. Gary Krantz, Case No. 10-93904-

BHL-l l , Adv. No. 12-59052 (Bnkr. S.D. Ind, October 2015). 13 1 In re EASTERN LIVESTOCK CO., LLC, Debtor, Bankruptcy No. 10-93904-BHL-l l. [US Bankruptcy Court, 

S.D., Indiana, New Albany, Division], July 27, 201 2. 132 11 U.S.C. §547(c)(2). 

77 
incurred in the ordinary course of business or financial affairs of the debtor and the creditor; (2) 

that payment was made in the ordinary course of dealings between the debtor and the creditor; or 

(3) that payment was made according to ordinary business terms. 

This generally requires examination of (1) the length of time the parties have engaged in 

the type of dealings at issue; (2) whether the subject transfer was in an amount more than usually 

paid; (3) whether the payments were tendered in a manner different from previous payments; (4) 

whether there appears any unusual action by either the debtor or the creditor to collect or pay on 

the debt; and (5) whether the creditor did anything to gain an advantage in light ofthe debtor' s 

deteriorating financial condition. 

In the Krantz case, the court did not find that the subject payments were made in the 

ordinary course of business. The court said that Krantz provided only a "limited transactional 

history," and did not prove that wire transfers were common practice prior to the Eastern failure. 

Payments to Krantz were initially made by checks that were later voided and replaced with a wire 

transfer that the court found to be not "ordinary." 

The second part of Krantz's defense was that the payment was in contemporaneous 

exchange. Contemporary exchange transfers are those intended by the parties to occur at the same 

time as the sale or transfer of something. The Bankruptcy Code does not necessarily require 

immediate payment, but payment should be made relatively quickly after sale. 

In the Krantz case, delivery of cattle was made October 15, 2010. The Eastern livestock 

representative testified that they would traditionally receive the cattle and send invoices after 

receipt and inspection of the livestock to the Eastern headquarters for payment per court 

documents. The trustee argued that the debt was incurred at the time the contracts were entered in 

August and September 2010, thus supporting the trustee' s preferential transfer allegation and the 

78 
"antecedent debt." The court ruled against the trustee, stating that the debt was incurred at the 

time the goods were delivered and not during the contract creation. The court found in favor of 

Krantz, stating "the exchange was in fact contemporaneous, and that the exchange was for new 

value." 

While Krantz was successful in defending the preferential transfer claims made against 

him, the defense likely came at a significant cost. Krantz, and other similarly situated livestock 

sellers, may prevail in these cases absent a dealer statutory trust, but they are harmed nonetheless 

by expending resources to defend themselves. A dealer statutory trust would reclassify payments 

from "unsecured debt payment" to "trust debt payments" and prevent payments to livestock sellers 

from being considered preferential transfers, thus saving sellers considerable time and money. 

Public Comment Summary: Commenters agree that a livestock dealer statutory trust 

would improve conditions for livestock sellers when it comes to preferential transfers in 

bankruptcy. Commenters recognize that even though valid defenses may apply, sellers must still 

expend considerable resources to defend their position. Commenters presume a dealer trust would 

exclude livestock purchases from the bankruptcy estate and eliminate livestock payments from the 

pool of potential preferential transfers. 

Study Finding: Under bankruptcy law, a livestock seller may offer valid legal defenses 

against trustee claims of preferential transfer. However, mounting those defenses can be costly to 

sellers and offset the potential benefits of preserving livestock payment funds. A livestock dealer 

statutory trust could improve conditions for livestock sellers as to preferential transfers in 

bankruptcy. Under a trust, livestock purchase payments made to sellers within 90 days before a 

dealer files bankruptcy would not be considered preferential transfers and could not be reclaimed 

from sellers. 

79 
X. Exempting Low Volume Dealers from the Trust 

Study Element: Consider the effects of exempting dealers with average annual 

purchases under a de minimis threshold from being subject to the livestock dealer statutory trust. 

Background and Analysis: A de minimis threshold is a provision that would exempt 

certain dealers from the statutory trust requirements. The threshold would be set at a specific 

annual livestock purchase volume. If a dealer purchases less than the threshold level, that dealer 

would be exempt from the trust provisions. Livestock sellers that do not receive payment from a 

dealer who is exempt from the trust provisions would not be able to file a valid trust statutory trust 

claim on that dealer. 

Dealers who purchase livestock in an amount equal to or in excess of the threshold would 

be subject to the trust. Sellers that do not receive payment from subject dealers could file valid 

statutory trust claims on those dealers. Recovery would be dependent upon the number and amount 

of valid claims and the value of any available trust assets. Ifvalid claims are greater than the value 

of the trust assets, payment would be made to claimants on a pro rata basis. 

A dealer's annual purchase volume would determine whether a dealer is subject to the 

statutory trust provisions. The type oflivestock purchased by the dealer would not be relevant. For 

example, if the threshold is set at $500,000, as in the packer trust, a dealer whose total annual 

purchases were 500 head offed cattle at a cost of $500,000, would be subject to the statutory trust, 

but a dealer whose total annual purchases were 3,500 goats at a cost of$450,000, would be exempt. 

There are de minimis thresholds established in other segments of agriculture. The packer 

statutory trust, for example, exempts from its requirements packers who purchase less than 

$500,000 of livestock annually. The poultry statutory trust exempts from its requirements live 

poultry dealers who purchase, or obtain through poultry growing arrangements, less than $100,000 

80 
of live poultry annually. Retailers that purchase less than $230,000 of produce during a calendar 

year are exempt from all P ACA requirements. 

In addition to being exempt from the packer statutory trust requir~ments, packers who 

purchase no more than $500,000 of livestock annually are also exempt from the bonding 

requirements. All livestock dealers are required to maintain a bond to secure their purchase 

obligations; there is no de minimis threshold to exclude dealers under a certain purchase volume 

from the bonding requirements. 

Dealer purchase volume, for purposes of determining whether a dealer would be subject to 

the statutory trust requirements, would derive from annual reports filed by the dealers. 133 The 

annual report filings require distinct reporting of purchases made on a dealer basis and those made 

on a commission basis. Table 6, earlier in this report, shows the distribution of dealers according 

to their reported total dealer and BOC volume. 

PSD records show 3,419 active livestock dealers as of the 2017/2018 annual reporting 

period.

134 Annual purchase data is available for 3,248 of these dealers. Reports were not filed by 

171 dealers. Nearly sixty percent of dealers reported annual dealer purchase volume under 

$500,000. This includes 1,136 dealers that reported no livestock purchases, but instead reported 

livestock purchases for which they earned a commission.

135 Annual livestock purchase volume of 

between $500,000 and $1.3 million was reported by 11.2 percent of dealers. The $1 .3 million 

number is significant because it is the maximum purchase amount that still qualifies for the 

minimum required bond of $10,000. Another 8.5 percent of dealers reported total livestock 

purchase volume between $1.3 million and $2.6 million, which is the maximum purchase level 

133 9 CFR 201.97. 134 Detailed data on dealer purchase volume is found in Table 6 of this report. 135 1,136 dealers reported no dealer purchase volume. These dealers as a whole, reported $7.026 billion in BOC 

livestock purchases during the 2017 /2018 reporting period. 

81 
requiring a $20,000 bond. Six percent ofdealers report total annual purchase volume between $2.6 

million and $5 million. Those reporting over $5 million in total annual livestock purchases make 

up 15.6 percent of all dealers. 

Excluding BOC purchases and dealers with annual purchase volume under $500,000 

leaves 1,343 dealers, or about 64 percent, who would be subject to a dealer statutory trust. 

Lowering the threshold to $250,000 results in 1,574, or about 75 percent of dealers who would be 

subject to the dealer statutory trust, and a $100,000 threshold leaves 1,799 or about 85 percent of 

dealers who would be subject to the trust requirements. Table 16, above, illustrates the impact of 

a de minimis threshold. 

Dealer defaults occur among dealers of all sizes. During the study period, there were 82 

bond claim incidents. The largest number of defaults (18) occurred among dealers with the lowest 

purchase volume ($10,000 bond level). The next highest number of defaults occurred among 

dealers with a relatively high purchase volume ($85,000 bond level). Table 17 illustrates the 

number of defaults for which bond claims were filed during the study period based upon the size 

of the dealers' bond. The table shows both total bond claims and valid bond claims. The recovery 

rates are calculated as a percentage of valid bond claims. 

82 
T a ble 17 Recovenes . b ,y Dea 1 B er ondAmount 

Number Bond Total Claim Valid Claim Paid By Recovery Paid By Total 

of Amount Amount Amount Bond Rate- Other Recovery 

Incidents Bond Rate 

(Valid (Valid 

Claims) Claims) 

2 No Bond $85,226 $0 $0 NIA $64,822 NIA 

18 $10,000 $449,353 $261,014 $67,825 26% $133,949 77% 

7 $15,000 $396,930 $212,229 $15,000 7% $163,855 84% 

6 $20,000 $344,795 $344,795 $73,905 21% $169,764 71% 

1 $25,000 $28,000 $24,510 $0 0% $24,510 100% 

4 $30,000 $523,374 $512,143 $33,170 6% $409,320 86% 

s $35,000 $332,269 $229,487 $7,000 3% $219,487 99% 

2 $45,000 $371,941 $350,916 $47,925 14% $115,632 47% 

3 $50,000 $393,548 $160,958 $0 0% $187,453 116% 

3 $60,000 $141,154 $108,754 $0 0% $108,754 100% 

2 $70,000 $94,323 $54,406 $54,406 100% $0 100% 

1 $75,000 $83,808 $83,808 $75,000 89% $0 89% 

s $80,000 $350,637 $275,090 $86,566 31% $188,198 100% 

7 $85,000 $1,293,414 $1,090,022 $322,957 30% $192,558 47% 

1 $90,000 $924,194 $0 $90,000 NIA $0 NIA 

2 $95,000 $337,439 $0 $0 NIA $0 NIA 

13 >$100,000 $19,926,012 $18,569,540 $1,389,000 8% $6,249,608 41% 

82 Total $26,020,417 $22,228,654 $2,262,752 10% $8,178,890 47% 

Recovery rates also vary among claims on different size bonds. The 18 claimants who filed 

timely claims on $10,000 bonds realized a 26 percent recovery rate from bond payouts. The seven 

claimants who filed timely claims on $85,000 bonds realized a 30 percent recovery rate from bond 

payouts. Overall, claimants realized a 10 percent recovery rate on the 82 claim incidences. 

83 
The number that approximates potential recovery if a dealer statutory trust had been in 

place is the total recovery rate, which combines the bond payout and the "paid by others" amounts. 

The "paid by others" amount represents funds typically paid by the dealer to satisfy purchase 

obligations after bond claims have been filed. Total recovery for the 18 claimants that filed claims 

on $10,000 bonds was 77 percent. For the 7 claimants on $85,000 bonds, total recovery was 47 

percent. Overall, across the 82 incidents involving bond claims, total recovery was 47 percent of 

the valid claim amount. Figure 3 illustrates recoveries by dealer size. 

Seller Recovery by Dealer Bond Amounts 

140% 

120% 

100% --.,........,.-~-----

80% 

60% , 

40% 

20"/4 

0% I • I - - ■ 

■ Recovery Rate - Bond (Valid Claims) Recovery Rate - Other Sources (Valid Claims) 

Figure 3. Seller Recovery by Dealer Bond Amount 

The data suggest that the "paid by other" and total recoveries during the study period 

represent the minimum level of recovery that would have been realized under a dealer statutory 

trust. These amounts, in excess of bond coverage, were paid from funds that would likely be trust 

assets under a dealer statutory trust. The amounts paid were tendered without a dealer statutory 

trust dictating the disposition of those funds. If a statutory trust had been in place during the study 

period, higher total recoveries might have been realized. Livestock dealers are required to file a 

84 
report with PSD on an annual basis. PSD uses livestock purchase volume data from these reports 

to determine the dealer's required bond amount. Dealers typically complete and submit their 

reports themselves since there is no requirement that they use a professional accountant when 

reporting financial information. Such a requirement could place an undue burden on small 

businesses. This means, however, that annual reports may not always be accurate, and dealers with 

reported purchase volume close to any threshold amount could be inaccurately deemed to be 

subject or not subject to the trust. Some livestock sellers could lose benefit of the trust due to 

inaccurate reporting. 

Public Comment Summary: Commenters did not support using the same $500,000 

threshold applicable to the packer statutory trust because it would exclude too many dealers from 

the statutory trust requirements. A majority of commenters wrote that a dealer statutory trust 

should have a very low or no purchase volume threshold for exempting dealers from the trust. 

Commenters maintain sellers should be able to recover what they are owed, regardless of the size 

of the dealer to whom they sold their livestock. 

Study Finding: A de minimis annual threshold of $500,000 exempting smaller dealers 

from a statutory trust could exclude a significant percentage of dealers, offering better protection 

only to those sellers who do business with larger livestock dealers. 

85 
XI. Buyer and Seller Behavior in Markets for Livestock 

Study Element: Analyze how the establishment of a livestock dealer statutory trust 

would affect buyer and seller behavior in livestock markets. 

Background and Analysis: Dealers play an important role in the livestock industry by 

adding valuable competition for livestock sold in the country (for instance, at farms) , at traditional 

auction markets, and through internet sales. This competition helps insure that producers receive 

a competitive price for their livestock. The following analysis reflects public comments submitted 

in response to the April 25, 2019, Federal Register notice and PSD's knowledge of the industry. 

Commenters were asked how the establishment of a livestock dealer statutory trust would 

affect buyer and seller behavior in markets for livestock. Approximately five percent of 

commenters addressed the question at all, and their comments were mostly anecdotal. Of those 

who addressed the question, 70 percent supported establishment of a dealer statutory trust and 

predicted that a trust would have no impact on buyer and seller market behavior. Commenters in 

this group explained that individuals will continue to raise and sell livestock as they do now, but 

that a trust would give sellers added security in that livestock sellers would be given priority in the 

case of a dealer default or bankruptcy. One commenter noted that the ability to recover livestock 

or proceeds in the event of a default would stabilize the marketing process. 

Several commenters noted that many auction markets already implement what they called 

good business practices, and that those practices would not change with the addition of dealer trust 

protection. For instance, many auctions currently screen buyers (dealers) by checking PSD's 

website to make sure dealers are bonded. Some auctions enforce prompt payment ( e.g. cash on 

the day of sale) policies. One market auction commenter confirmed that he would not change the 

way he does business or relax his business practices with a trust in place. Commenters recognized 

86 
that defaults can happen even when sellers employ prudent business practices, but they saw a 

statutory trust as another layer of potential financial recovery in addition to the dealer bond. 

Assuming a statutory trust would apply to every dealer purchase, unless the statute allowed 

for a waiver or excluded dealers below a certain de minimis sales threshold, PSD concurs that if a 

dealer statutory trust were implemented, livestock commerce in general would continue as usual. 

It is possible that implementation of a livestock dealer statutory trust could increase the number of 

animals sold to dealers, as market participants might view the statutory trust as a means to limit 

risk associated with selling livestock through dealers. In tum, some livestock sellers might limit 

the number ofanimals they sell through other marketing avenues, preferring the additional security 

offered by the trust. Such shifts might impact competition for business among dealers and others, 

which could influence prices in those markets. Price impacts would presumably be negligible as 

market participants would continue to have multiple marketing options, including traditional 

auction markets, that may be perceived as equal to or less risky than selling directly to a dealer. 

Commenters opposed to a trust were concerned that it could diminish the availability of 

credit, which many dealers rely on, and force many dealers to leave the industry or to adopt 

alternate roles in the market. Again, commenters thought fewer dealers would mean less 

competition among buyers in the livestock market and lower prices to sellers. The potential impact 

of a trust on credit availability is explored more fully in section XII of this report. There, PSD 

concludes that a dealer statutory trust alone would likely have little impact on credit availability. 

It is unlikely that a significant number of dealers would exit the market for want of credit. 

Lenders who submitted comments explained that they consider the creditworthiness of each 

individual dealer or dealer firm when making lending decisions, and that wouldn't change under a 

statutory trust. It is likely that most dealers already pledge non-transient assets such as land as 

87 
collateral against their loans, in addition to the more transient asset of livestock, which may move 

in and out of their possession relatively quickly. One lender admitted they might mitigate their 

risk under a trust by demanding additional collateral if the lender was not in a first lien position on 

livestock inventory. Other comrnenters feared the demand for additional collateral could force 

otherwise reputable dealers out of business simply because they would be unable to pledge 

additional collateral. Still others suggested that reduced availability of credit might discourage 

bankers from financing the livestock industry at all levels. 

Sellers who enter credit agreements with dealers forfeit their rights to recover under the 

trust. Thus, sellers would be less likely to extend credit to dealers. Reducing the credit extended 

to dealers by sellers could reduce the overall impact of dealer financial failures, but it could also 

force some dealers to exit the market. It is arguable that those dealers who might exit the market 

because of the dealer trust are the dealers who are causing more risk in the market due to having 

insufficient capital to collateralize their operating loans. In that case, the loss or gain to the overall 

market would be a function of the number of dealers exiting the market, resulting in some loss to 

competition, balanced with a possibly stronger, less risky market due to the absence ofless creditworthy dealers that would have been more likely to default on their obligations. 

Comrnenters suggested other ways in which buyer and seller behaviors might change as a 

result of a dealer statutory trust. Comrnenters speculated that a trust would encourage dealers to 

keep better records in order to segregate potential trust assets from personal or non-dealer assets 

and to better track payments. Better financial recordkeeping could help dealers avoid 

overextending themselves and deter default situations. Comrnenters thought sellers might have 

more incentive to file trust claims on late payments on time, knowing they'd have better chances 

of financial recovery, and possibly avoid the need to file bond claims. 

88 
There is some risk that livestock sellers could develop a false sense ofsecurity when selling 

to dealers covered by a statutory trust. Some sellers may be less diligent about evaluating the risk 

associated with selling livestock to any particular dealer. There would still be varying risks 

associated with individual dealers, including the risk ofnot being promptly paid as required by the 

Act. As a result, the enactment of a trust could cause market participants, in some cases, to enter 

into riskier transactions because they are selling to a livestock dealer. 

Livestock dealers succeed in the marketplace based on their knowledge of the livestock 

purchased, their relationship with sellers (knowing where to buy livestock), and their relationships 

with buyers (knowing where to sell livestock). Even if some dealers were unable to obtain 

financing because of a dealer trust and were required to exit the dealer market, they would still 

retain the underlying knowledge and expertise required to be a successful livestock dealer in 

alternative roles, for instance as a market agency buying on commission or being cleared on 

another livestock dealer' s bond. It is conceivable that the expertise of these individuals and the 

competition they represent would not be lost to the livestock industry, as many of these dealers 

could still participate in the market in a way that did not require the capital needed to buy and sell 

livestock as dealers. 

One commenter, a livestock auction, described their efforts to develop and maintain good 

relationships with buyers and the producers whose livestock move through the auction. The 

commenter explained that the logistics ofthe business demand that the auction both pay the seller 

and ship the livestock quickly, leaving the auction to "take the hit for any unpaid stock." The 

commenter supported implementation of a dealer statutory trust not only because it would increase 

the likelihood offinancial recovery, but because it would help preserve the livelihood ofemployees 

and affiliated businesses whose survival depend on the auction. 

89 
Public Comment Summary: Most commenters stated that a dealer statutory trust would 

not have a significant impact on buyer and seller behavior in markets for livestock. Many expect 

that business would continue as usual, the only difference being improved chance of recovery in 

the case of a dealer default. Several commenters described their personal experiences in states 

where livestock lien laws were recently enacted and reported no significant changes in buyer or 

seller behavior. 

Other commenters suggested that a dealer statutory trust could cause dramatic changes in 

the way livestock is marketed. Some commenters believe livestock dealers would have less access 

to credit, which would result in elimination of many buyers and decreased competition. 

Study Finding: Establishment of a livestock dealer statutory trust would likely have 

little effect on buyer and seller behavior in livestock markets. In general, commerce would 

continue as usual. Livestock sellers would enjoy a greater chance of financial recovery in the case 

of a dealer default. 

XII. Credit Availability 

Study Element: Consider what potential effects a livestock dealer statutory trust would 

have on credit availability, including impacts on lenders and lending behavior and other industry 

participants 

Background and Analysis: A livestock dealer statutory trust would give unpaid sellers of 

livestock first priority to the livestock inventories and accounts receivable of dealers who file for 

bankruptcy protection. Trust assets would be excluded from the dealer' s bankruptcy estate and 

would be available to other creditors only after all unpaid livestock sellers received full payment. 

This situation raises concern among some in the industry that lenders may limit the credit available 

90 
to their dealer customers because livestock, cash, and accounts receivable would be less appealing 

as collateral to secure a loan or line of credit. 

The packer and poultry statutory trusts, PACA trust, and at least one state livestock lien 

law place unpaid livestock, poultry, or produce sellers in a superior position to secured creditors 

in bankruptcy. In none of these instances have market participants reported a lack of available 

credit on account of the trusts or lien law. PSD spoke with several lenders in the development of 

this report. Lenders explained that the decision to loan money depends on the overall financial 

condition of the borrower and perceived risks the lender associates with the borrower. 

In discussions regarding lending to livestock dealers, specifically in the event of a dealer 

statutory trust, lenders described what would be a multi-faceted process. Lenders rely on 

borrowers to provide information to them regarding the collateral securing the loan. The lending 

industry generally refers to this collateral as the borrowing base. Lenders require borrowers to 

regularly provide borrowing base reports to determine the amount of money they are willing to 

loan the livestock dealer, based on the value ofthe collateral as stated in the borrowing base report 

multiplied by a discount factor. According to some lenders, dealers pledge accounts receivable as 

collateral, but the borrowing base report used to determine lending also requires borrowers to 

deduct accounts payable from the borrowing base. If a dealer trust was enacted, the accounts 

payable for unpaid livestock would be subject to the trust. As an industry practice, lenders 

currently discount accounts payable against accounts receivable, dealer credit availability would 

arguably not be impacted by a dealer trust because lenders have already excluded those funds 

subject to a potential trust. 

Commenters' main concern about dealer credit availability is that the creditor would lose 

security interest in the accounts receivable if a trust were established. As lenders cross91 
collateralize136 loans, they may require a dealer to post additional or alternative collateral, 

depending on the risks associated with that livestock dealer. A dealer without access to additional 

capital may have limited access to credit. Some lenders may require borrowing dealers to post 

bonds, letters of credits, or tri-party agreements in addition to their capital assets, and they may 

closely scrutinize riskier borrowers to avoid losses. 

While lenders might be more cautious about offering credit to dealers with a statutory trust 

in place, lenders who provide loans to livestock sellers favor establishment of a dealer trust. Those 

lenders suggest the availability of credit for livestock sellers would increase because sellers would 

have better chances of recovery in case of dealer default under a dealer trust. 

Concerns about changes in lending behavior due to creation ofa statutory trust are not new. 

Congress considered those concerns and addressed them in their xiv 

xiv related to establishment of the PACA trust in 1983 . "The Committee believes that the 

statutory trust requirements will not be a burden to the lending institutions. They will be known to 

and considered by prospective lenders in extending credit. The assurance the trust provision gives 

that raw products will be paid for promptly and that there is a monitoring system provided for 

under the Act will protect the interests of the borrower, the moneylender, and the fruit and 

vegetable industry. Prompt payment should generate trade confidence and new business which 

yields increased cash and receivables, the prime security factors to the money lender." 137 

Packers and poultry dealers of all sizes who operate subject to P&S Act trust provisions 

have continued to obtain credit and borrow funds. Typically, because lenders are aware of the 

trust provisions, packer and live poultry dealer loans often include the provisions in loan 

documents acknowledging that some assets of the borrower are subject to the statutory trust. 

136 Cross-collateralization is offering assets acquired through one loan as collateral against another loan. 

137 H.R. Rep. No. 543, 98th Cong., 1st Sess. 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405,407. 

92 
Historically, AMS has not observed problems related to credit availability attributable to 

statutory trusts involving packers, live poultry dealers, or produce buyers. Lenders understand 

the trust laws and respond accordingly to minimize risk related to lending in the affected 

industries. 

The State of Oklahoma passed the Oklahoma Livestock Owner's Lien Act of 2011 138 

following a large livestock dealer default. The law protects the rights of livestock sellers by 

granting statutory liens to secure payment of the sales prices negotiated by livestock sellers. A 

security lien gives a creditor rights, such as the right to seize property, in order to enable recovery. 

This is different from a trust, which provides the trust beneficiary an equitable proprietary interest 

in the assets themselves. The Oklahoma law applies to all livestock transactions and is not limited 

to persons operating as livestock dealers. Commenters familiar with the Oklahoma livestock lien 

law reported no concerns about the availability of credit since the law's enactment. 

Public Comment Summary: PSD received 960 public comments that addressed credit 

availability related to a potential statutory trust. The majority maintained that a statutory trust 

would have little or no impact on credit availability. Several commenters discussed the Oklahoma 

lien law that has been in place for eight years and reported the law has had no . significant impact 

on credit availability. 

Commenters opposing creation of a dealer statutory trust were most concerned about credit 

availability. Several lenders commented that it would be unfair for the party taking the risk and 

lending money to not have secured rights in dealer' s livestock inventory and proceeds. This 

argument was countered by commenters who said it would be unfair for the farmer who fed, raised, 

138 4 Okla. §§ Stat. 201.1-11 , effective November 1, 2011. 

93 
and cared for the animals to not be paid for their livestock and instead see that money go to the 

bank. 

Commenters who asserted that a dealer statutory trust would impact credit availability and 

lending tended to be geographically concentrated in Texas and a few surrounding states. These 

commenters said a livestock dealer trust would cause more problems than it would solve, in that it 

would limit credit availability from traditional secured lenders to the livestock industry. 

Commenters feared that changing lien priority in default situations, thereby giving livestock sellers 

priority over secured lenders, would negatively impact producers, dealers, and livestock markets 

that rely on lenders to finance their operations. 

Several commenters distinguished between a lender's right to livestock that was paid for 

versus livestock for which payment was not made. They explained that trust assets in a floating 

trust created for dealers would include all livestock inventories, cash proceeds, and accounts 

receivable from the sale of livestock until all unpaid sellers are paid. Those assets could derive 

from livestock for which the dealer has not paid, or they could derive from livestock for which 

payment has been issued. Some commenters appear more supportive of a trust that encumbers 

livestock, proceeds and accounts receivable from livestock for which the dealer has not paid, than 

including assets for which payment was issued using borrowed funds. In the latter case, some 

commenters would support the lender having priority over those assets. 

Study Finding: Implementation of a livestock dealer trust would be unlikely to 

significantly impact credit availability or lender behavior. 

94 
XIII. Electronic Funds Transfer for Livestock Purchases 

Study Element: Study the feasibility of the industry-wide adoption of electronic funds 

transfer or another expeditious method of payment to provide sellers of livestock protection from 

nonsufficient funds payments. 

Background and Analysis: Electronic funds transfers (EFT) are payments sent 

electronically from a buyers' financial institution to a sellers' financial institution. EFT payments 

comply with the P&S Act's prompt payment requirements and are, therefore, authorized as a form 

of livestock payment. EFT payments offer the parties to a transaction a faster means to complete 

payment than waiting for a check to clear. With EFT payments, the seller typically knows very 

quickly whether funds will transfer, and thus the seller's risk associated with the transaction is 

reduced. 

Costs associated with EFTs vary depending on the bank and customer. Payment by ETF 

helps individuals and organizations save on costs such as printing checks, as well as the time to 

deliver or collect checks and deposit them in the bank for processing. Generally, funds are verified 

within 24 to 48 hours of the transaction being initiated. As long as the payer has sufficient funds 

available in their account, the transaction is cleared within 3 to 5 business days, and the funds are 

moved from the payer's account to the payee's account. 

Section 409 of the P&S Act was added by the same 1976 amendments that created the 

packer statutory trust. This section requires payment by livestock dealers, market agencies, and 

packers to be made by the close of the next business day after the purchase and transfer of 

possession oflivestock. 139 Congress included specific language to say that "payment by check or 

139 7 USC 228b. 

95 
wire transfer" was acceptable for meeting the prompt payment requirements. The delivery of a 

draft would not satisfy this requirement. 

The Act was amended in 2016 to clarify that electronic payments were acceptable methods 

of payment for livestock purchases. 140 The 2016 amendments explicitly allowed for the use of 

electronic funds transfer payments to meet prompt payment requirements and made acceptable 

"any other [payment] method determined appropriate by the Secretary." 

Automated Clearing House (ACH) transfers are the most economical form of EFT. The 

cost to transfer money between banks and clients varies. External transfers are free at some banks, 

and cost from $3 to $10 at others. These transfers are processed through the ACH electronic 

network, much like other ACH transfers, such as bill payments and direct deposits, at minimal 

cost. 

There are disadvantages associated with EFT payments. For example, the process cannot 

be reversed if a sender enters an incorrect account number or amount. There is a potential for 

hacking of personal banking details. Periodically, there are technical difficulties with the internet 

or electronic banking systems, which can delay funds transfers. Livestock industry participants 

note that they conduct business when the financial institutions are closed, which means there are 

sometimes problems communicating with financial institutions to initiate payment. 

Across the livestock industry, the use of paper checks remains the payment method of 

choice. Checks can be used anywhere at any time of day, whether the financial institution is open 

for business or not. They are not dependent upon an electronic network that may not function from 

time to time, and they are relatively inexpensive, as compared to various EFT payment methods. 

140 Public Law No: 114-237 (10/07/2016). 

96 
The primary argument against industry-wide adoption of EFT payments for livestock 

transactions is aimed simply at how the industry currently operates. Switching from payment by 

check to payment by EFT would be highly disruptive to the industry and could drive some 

participants out of business. Dealers often rely on the "float" when purchasing livestock. Float is 

the time between the writing of a check and the time that the check clears the bank account on 

which it is drawn. For example, Dealer Jones writes a check for $8,000 and mails it on Wednesday 

to ABC Livestock Market for purchases made at Tuesday' s sale. The check will not clear ABC 

Livestock Market' s checking account until Monday. Dealer Jones therefore has $8,000 of float 

between Wednesday and Monday. During that time, Dealer Jones expects to receive payment from 

sale of livestock and to deposit those proceeds into the bank to cover the check written to ABC 

Livestock Market. 

EFT payments would greatly reduce or eliminate the float upon which many dealers rely. 

Dealers unable to maintain sufficient funds at all times to cover purchases would likely reduce 

their purchasing or exit the business. Fewer buyers could lead to decreased competition for 

livestock and lower prices to sellers. 

Public Comment Summary: Commenters presumed that the creation of a dealer statutory 

trust would not change current P&S Act prompt payment requirements and were opposed to 

limiting payment options. At the same time, commenters noted that regardless of the payment 

method, the risk of a dealer default remains. Several industry trade associations noted that while 

electronic funds transfers could speed up transactions, there remains the possibility of payments 

being returned for insufficient funds. One auction operator said, "[w]hen sellers are not paid, it is 

generally because the funds do not exist. The payment method is irrelevant." 

97 
Commenters also expressed concern that changing the method ofpayment from a check in 

the mail to an electronic transfer and its impact on the float would significantly change the way 

the livestock industry functions. Many ofthe commenters expressed concern that this shift would 

put small- and medium-sized dealers out of business or would significantly reduce their buying 

power. One livestock auction operator estimated that 25% of the buyers attending his sale would 

not be able to participate if purchase funds were required to be wired the same day as the sale. 

One trade group representing small- and midsized banks commented that the problem with 

dealer defaults could largely be addressed by an expeditious EFT system. The group maintains 

that industry-wide adoption of EFT would solve the nonsufficient funds problem without causing 

market disruption. Under this commenter's suggestion, producers and auction barns would be 

instructed - or even required - to obtain bank-to-bank wire transfers before releasing their cattle 

for shipment. The commenter wrote that payments would be more certain because banks only wire 

money out if the sender has the funds available. According to the commenter, once the money 

arrives at the seller's bank, it is typically available within one business day. 

Study Finding: Industry-wide adoption ofEFT payments for livestock purchases would 

significantly change the way the industry functions. To date, relatively few entities -

predominantly the larger ones - have adopted that payment method. Making EFT payments 

mandatory under the Act is generally opposed by the industry. If adopted industry-wide, EFT 

payments would likely improve on-time payments and diminish the incidence of dishonored 

checks due to non-sufficient funds. However, an EFT payment requirement provides sellers little 

payment protection ifthe dealer takes possession ofthe livestock but does not have sufficient funds 

to cover the purchase price. 

98 
XIV. Glossary of Terms 

Auction Market: A person or entity selling livestock on a commission basis also referred to as 

a Market Agency Selling on Commission. "Market agency" means any person engaged in the 

business of (1) buying or selling in commerce livestock on a commission basis or (2) furnishing 

stockyard services. Traditional auction markets are operated in facilities that include a sales ring, 

through which livestock is routed for viewing by buyers, seating for persons attending livestock 

sales, and pen areas where livestock is kept. Under the Clarification ofTreatment ofElectronic 

Sales of Livestock Act of 201616, such term includes any person who engages in the business of 

buying or selling livestock, on a commission or other fee basis, through the use of online, video, 

or other electronic methods when handling or providing the means to handle receivables or 

proceeds from such buying or selling, so long as such person's annual average of online, video, 

or electronic sales oflivestock, on a commission or other fee basis, exceeds $250,000. (§301(c) 

(7 U.S.C. 201)) 

Trust Asset: In the context of a possible livestock dealer statutory trust, a trust asset includes: 

1) all livestock purchased by the dealer; 2) all inventories of, or receivables or proceeds from, 

livestock transactions; 3) any assets obtained with funds derived from the sale of livestock; and 

4) any payment of funds derived from livestock sales that are used to pay for non-livestock 

debts, assets, or other transactions. "Assets" are anything of value that is owned by a person or 

entity, whether fully paid for or not. 

Bond: A written guarantee of payment up to the face amount stated on the bond. Three types of 

bonds are authorized under the Packers and Stockyards Act and regulations: 1) a surety bond 

obtained from a surety or insurance company; 2) a Trust Agreement with a Letter of Credit 

issued by a financial institution; or 3) a Trust Fund Agreement based on funds deposited into a 

federally-insured account or invested in fully negotiable obligations of the United States of 

America. Any person harmed by the principal's failure to pay for livestock as required by law 

may file a claim against the principal' s bond. If the surety company or trustee on the bond 

deems the claim to be timely filed and valid, the claimant may recoup some or all losses from the 

bond. 

Bond Claim: A legal action that a livestock seller can take against a bonded principal, such as a 

livestock dealer or market agency, if the principal violates the law by failing to pay for livestock. 

Brand Inspection Agency: Livestock brand inspectors check brands on livestock. They also 

check any documents, such as shipping manifests and bills of sale, that show ownership when 

livestock is sold. 

Breach of Contract: A failure, without legal excuse, to perform any promise that forms all or 

part ofthe contract. It includes failure to pay sums of money due under the contract, and failure 

to perform in a manner that meets the standards ofthe industry or the requirements of any 

express or implied warranty, including the implied warranty ofmerchantability. Civil liability 

can result from breaching a contract. 

99 
Breach of Trust: Either intentional or negligent failure by a trustee to discharge the duties 

imposed on the trustee by the terms of a trust or by the general law governing the administration 

of trusts or trust property. 

Breeder Flocks: A flock of poultry consisting of hens and roosters (unless artificial 

insemination is used, as with some turkey breeder flocks) for purposes of producing fertilized 

eggs that are hatched into chicks or poults that will be grown for purposes of slaughter. 

Cash Sale: A sale in which the seller does not expressly extend credit to the buyer. 

Carcass/Dressed We ight: The carcass weight or more commonly known as the dressed weight 

refers to the hot or unchilled weight of the carcass after slaughter and the removal of the head, 

hide, intestinal tract, and internal organs. The carcass weight is used to determine yield grade and 

also dressing percentage. Dressing percentage is the percentage ofthe live animal that ends up as 

carcass and is calculated by dividing the carcass weight by the live weight of the animal. 

Cease and Desist Order: A legally enforceable order from a court or government agency 

directing someone to stop engaging in a particular activity that is in violation of the law or 

contrary to governing law. 

Civil Penalty: A civil penalty or civil fine is a financial penalty imposed by a government 

agency as a civil, non-criminal penalty, as a form of compensation to the government for a 

party's wrongdoing. The wrongdoing is typically prohibited by a statute, regulation, or 

administrative order. 

Clearee: A market agency or livestock dealer whose buying operations are covered ( or cleared) 

under the bond maintained by another market agency. The clearee must be named on the bond 

filed and maintained by the market agency that is registered to provide clearing services. (9 CPR 

§201.29 (c)) 

Clearor: A market agency that is registered to provide clearing services (bond coverage) for 

other market agencies or livestock dealers. (9 CPR §201.29 (c)) 

Commerce: Means commerce between any State, Territory, or possession, or the District of 

Columbia, and any place outside thereof; or between points within the same State, Territory, or 

possession, or the District of Columbia, but through any place outside thereof; or within any 

Territory or possession, or the District of Columbia. (Section 2(a)(l 1) of the Packers and 

Stockyards Act, 7 U.S.C. § 182(11)) 

Commission: 1) A fee paid by a livestock seller or consignor to an auction market (market 

agency selling on commission) for the market's services in selling livestock; and 2) A fee paid to 

an agent (market agency buying on commission) for purchasing livestock, usually on a perhundred-weight (CWT) or per head basis. 

Contract Production System: A system where a producer, grower, or farmer contracts with a 

live poultry dealer, swine contractor, or other party, and in which the producer, grower, or farmer 

provides the land, buildings, equipment, utilities, and daily care and management of the birds or 

100 
livestock, while the poultry or livestock company supplies the chicks, piglets or other young 

animals, feed, and any necessary health or technical assistance. 

Credit Agreement: A written agreement allowing for the purchase of livestock or poultry on 

credit (non-cash basis). 

Credit Availability: The amount of credit to which a borrower has access at a given time. 

Dealer: The term "dealer" means any person, not a market agency, engaged in the business of 

buying or selling livestock in commerce, either on his own account or as the employee or agent 

of the vendor or purchaser. (Section 301(d) of the Packers and Stockyards Act, 7 U.S.C. § 201) 

A dealer typically operates independently to purchase livestock for resale at a profit. Some 

dealers, however, are employees of other entities, including packers, and purchase for their 

employer's account. 

Default: An instance in which a buyer has failed to pay for livestock when due. 

De minimis: Too trivial or minor to merit consideration, especially in law. 

Distributor: An agent who supplies goods to stores and other businesses that sell to consumers. 

Electronic Funds Transfer (EFT): The electronic transfer of money from one bank account to 

another. 

Failure: Refers to a person or entity ceasing business operations. 

Farming or Feeding Operation: Breeding and/or raising livestock to grow to a suitable size 

and weight for slaughter. 

Feedlot: A large area with groups of pens in which livestock is fed to grow to a suitable size and 

weight for slaughter. Some feedlots are operated solely to grow their own livestock, while others 

are operated commercially and feed livestock for others. 

Feed mill: A facility that mixes and mills ingredients to produce animal feed. Poultry 

integrators operate their own feed mills to produce the feed that is delivered to farms raising their 

birds. 

First-In-First-Out (FIFO): The oldest inventory items are recorded as sold first, but the oldest 

physical object has not necessarily been tracked and sold. In other words, the cost associated 

with the inventory that was purchased first -is the cost expensed first. 

Floating Trust: A trust in which all livestock inventory and proceeds/receivables are held in 

trust until all unpaid sellers are paid in full. 

Grade and Yield Basis: A method of pricing livestock on a dressed weight basis and on quality 

and yield grades. 

Poultry Grower: Any person engaged in the business of raising and caring for live poultry for 

slaughter by another, whether the poultry is owned by such person or by another, but not an 

101 
employee of the owner of the poultry. (Section 2(a)(8) of the Packers and Stockyards Act, 7 

U.S.C. § 182(8)) 

Grow-Out Operation: A facility in which poultry is grown to a suitable size and weight for 

slaughter. In a vertically integrated system, the grow-out operation is typically located on farms 

owned and managed by independent contract growers. 

Hatchery: A facility in which fertile eggs from breeder flocks are hatched and then delivered to 

broiler farms for growing poultry for slaughter. 

Integrator: A poultry or swine company that owns and controls multiple stages of production, 

such as the breeder flocks, hatchery, grow-out operations, processing (or slaughter) plant, feed 

mill, transportation, and marketing. 

Live Basis: The purchase of livestock based on their live, pre-slaughter weight. 

Market Agency Buying on Commission (BOC): A person or entity buying livestock for others 

on a commission basis. Also referred to as an "Order Buyer." The tenn "market agency" means 

any person engaged in the business of (1) buying or selling in commerce livestock on a 

commission basis or (2) furnishing stockyard services. Under the Clarification ofTreatment of 

Electronic Sales of Livestock Act of 2016, such term includes any person who engages in the 

business of buying or selling livestock, on a commission or other fee basis, through the use of 

online, video, or other electronic methods, when handling or providing the means to handle 

receivables or proceeds from such buying or selling, so long as such person's annual average of 

online, video, or electronic sales of livestock, on a commission or other fee basis, exceeds 

$250,000. (Section 301(c) of the Packers and Stockyards Act, 7 U.S .C. § 201) 

Market Agency Selling on Commission (SOC): See Auction Market, above. 

Meat Food Products: Products or byproducts of the slaughtering and meatpacking industry, if 

edible. (Section 2(a)(3) of the Packers and Stockyard Act, 7 U.S.C. § 182(3)) 

Nonsufficient Funds (NSF): A payment instrument (i.e., check or draft) written on a financial 

account that has insufficient funds to cover the amount of the payment instrument. The 

instrument is often called a bad check, bounced check, returned check, or dishonored item and is 

typically returned unpaid to the payee due to insufficient funds. 

Non-Valid Claim: A trust or bond claim that is reviewed and found to be invalid due to failure 

to meet claim requirements (for example, lack of signature, documentation, mailing, or 

timeliness). 

Order Buyer: A buyer who purchases livestock for the account of another. 

Packer: Any person or entity engaged in the business (a) of buying livestock in commerce for 

purposes of slaughter, or (b) of manufacturing or preparing meats or meat food products for sale 

or shipment in commerce, or ( c) of marketing meats, meat food products, or livestock products in 

an unmanufactured form, acting as a wholesale broker, dealer, or distributor in commerce. 

(Section 201 of the Packers and Stockyards Act, 7 U.S.C. § 191) Informally, packers are 

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sometimes called a processor or slaughterer. Livestock slaughtering facilities are sometimes 

called an abattoir, processing plant, or slaughtering plant. 

Packer Buyer: A person purchasing livestock as an employee of a packer for the packer's 

account. 

Perishable Product: A produce or meat product that goes bad within a short time frame. The 

product often requires refrigeration or freezing to slow deterioration. 

Live Poultry Dealer: A person or entity engaged in the business of obtaining live poultry by 

purchase or under a poultry growing arrangement for the purpose of either slaughtering it or 

selling it for slaughter by another, if poultry is obtained in commerce, or if the poultry is sold or 

shipped in commerce, or if poultry products from poultry are sold or shipped in commerce. 

(Section 2(a)(IO) of the Packers and Stockyards Act, 7 U.S.C. § 182(10) 

Preferential Transfer: The transfer of an interest (i.e., payment or property) of the debtor 

during a specified period, usually 90 days, before a bankruptcy filing. 

Principal: A person or firm that owns or takes delivery of an asset. The principal often gives 

permission for an agent to act on the principal' s behalf. 

Processing Plant: A facility that slaughters livestock, also called an abattoir or slaughtering 

plant. 

Processor: A packer that slaughters livestock, also referred to as slaughterer or packer. 

Producer: A person that raises, tends to, or cares for livestock and/or crops for production 

and/or farm uses. A producer is often called a farmer. 

Prompt Payment: The Packers and Stockyards Act requires that every regulated entity 

purchasing livestock must deliver the full amount of the purchase price to the seller. In the 

absence of a valid credit agreement, payments for livestock purchases are due before the close of 

the next business day following the purchase and transfer of possession. (Section 409 of the 

Packers and Stockyards Act, 7 U.S.C. § 228b) 

Receivables: Monies owed to a business or individual; often counted as an asset. 

Recovery: The collection ofreceivables or monies owed to an individual or company. 

Registrant: Any person or entity operating or desiring to operate as a dealer, market agency 

buying on commission, market agency selling on commission, or clearing agency, for which 

registration is required under the Packers and Stockyards Act 

Regulated Entity: any person operating or desiring to operate as a dealer, market agency buying 

on commission, market agency selling on commission, live poultry dealer, packer, swine 

contractor, or clearing agency, and who is subject to the provisions of the Packers and 

Stockyards Act and regulations issued under the Act. 

Restitution: The financial restoration of monies or property that is lost or stolen; to be made 

"whole" again financially in a breach, failure, or default. 

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Secured Creditor: A creditor with a security interest in all or portion of a debtors' assets, such 

as a mortgage on real property or a lien on personal property. 

Solvent/Insolvency: Refers to a person's or entity's financial condition. Insolvency exists when 

the current assets are less than current liabilities. Solvency exists when current assets exceed 

current liabilities. 

Statutory Trust: A trust created by operation of federal or state law in which property or other 

assets are held by a trustee for the benefit of beneficiaries of the trust. 

Stockyard: Any place, establishment, or facility commonly known as a stockyard, and that is 

conducted, operated, or managed for profit or nonprofit as a public market for livestock 

producers, feeders, market agencies, and buyers, consisting of pens, or other enclosures, and 

their appurtenances, in which live cattle, sheep, swine, horses, mules, or goats are received, held, 

or kept for sale or shipment in commerce. (Section 302 of the Packers and Stockyards Act, 7 

U.S.C. § 202) Informally, an enclosed facility with pens and sheds where livestock are held 

temporarily for public sale. 

Surety: A promise by one party to assume responsibility for the debt or obligation of another 

party if that party defaults. The person or company providing the promise is also known as a 

"surety" or as a "guarantor." 

Terminal Market: A central location where agriculture products/commodities are traded. 

Trucking: Refers to the transportation of livestock or other agriculture commodities from one 

location to another. 

Trust Account: A financial account established by a responsible third party to handle the 

collection and disbursement of trust assets or payments. A Custodial Account maintained by a 

market agency selling on commission is a type of trust account in which payments for livestock 

by buyers are deposited as trust funds that are held under a fiduciary duty for the benefit of 

individuals or entities who consigned livestock to the market for sale. 

Trust Agreement/Letter of Credit (T A/LOC): A standby Letter of Credit is used in 

conjunction with a Trust Agreement in lieu of a surety bond by regulated entities. The standby 

Letter of Credit is an agreement by a financial institution to cover the regulated entity's 

purchases to sellers up to the amount stated on the Letter of Credit/Trust Agreement. The Trust 

Agreement is a legal document that gives title of assets to a trustee to secure the principal's 

credit. 

Trust Beneficiary: A person or entity entitled to the benefit of trust assets. 

Trust Claim: A request document filed by a creditor requesting payment from trust proceeds 

for monies owed. 

Trustee: A natural person or entity to whom property is legally committed to be administered 

for the benefit of one or more beneficiaries (such as unpaid livestock sellers). 

104 
Trust Fund Agreement (TFA): A type of agreement that allows currently held assets and 

accounts to be held in trust. TF As may be used in lieu of surety bonds by regulated entities. 

Unsecured Creditor: A creditor with no security interest in the event of a default or failure. 

Valid Claim: A claim request that meets all the claim requirements including signature, timely 

filing, and appropriate documentation. 

Vertically Integrated Company: A business strategy where one company owns or controls its 

suppliers, distributors, or retail locations to control its value or supply chain. Example: poultry 

integrators own or control the hatchery, feed mill, slaughtering plant, further-processing plant, 

and distribution system. 

Wholesaler: A business or individual that buys products from a manufacturer and resells the 

products to retailers, typically in large quantities. 

105 
XV. Appendices (including detailed comment summaries) 

a. Circumstances Unique to Livestock Dealers 

PSD posed the following question for public comment: "How would the unique circumstances 

common to livestock dealers impact the functionality ofa livestock dealer statutory trust?" PSD 

identified 334 comments that addressed this question. Of the 334 comments, 212 comments said 

that circumstances would have a negative impact and 120 comments suggested a positive 

impact. Two comments provided suggested minimal impact on circumstances impacting the 

functionality of a dealer trust. 

Many of the commenters mentioned the speed of tum-over between purchase of livestock 

and transfer/resale of livestock. Prompt seizure of monies and/or cattle inventory would be 

necessary in a dealer trust scenario. One organization commented that "Livestock dealers purchase 

and quickly resell large volumes of livestock. Because of this, there are three components of 

statutory trust function that make a dealer statutory trust a good fit. First, the inclusion of 

proceeds/receivables for livestock purchased in cash sales as trust assets is important. Second, a 

statutory trust not requiring unpaid sellers to trace specific assets is crucial. Third, the ability to 

claw-back improperly diverted trust funds also improves functionality. Due to the rapid speed of 

livestock inventory corning in and out of a dealer business, the inclusion of proceeds/receivables 

for livestock purchased in cash sales as trust assets is important. For example, if a dealer purchases 

(but doesn't pay for) livestock at an auction market and resells them to a feed yard, the proceeds 

the dealer received from the feed yard would be trust assets. This would be the case until unpaid 

cash sellers of livestock to the dealer are paid in full. " 

Commenters discussed the dealer as a trustee compared to the packer as a trustee in packer 

statutory trust situations. Generally, a packer is a larger operation than a dealer with more resources 

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than a dealer. Packers are more likely to have personnel with expertise to serve as trustee, whereas 

a dealer is less likely to have the time and resources necessary to serve as trustee. Similarly, 

livestock dealers are less likely to have a formal business structure with a bookkeeper and 

accountant, or software programs for managing business. 

Dealers may therefore not have the same professionally maintained financial statements 

that packers typically have. Due to limitation offunds, and possibly an informal business structure, 

a livestock dealer may not be regularly audited professionally to ensure proper finances. 

Some commenters said that defining a "dealer" is at the core of their concerns. "Who is 

considered a livestock dealer, how will their business activities be differentiated, and will Packers 

and Stockyards have adequate resources to oversee the program." One commenter noted that there 

were 304 bonded packers, 129 live poultry dealers and 4,634 registered dealers subject to the P&S 

Act. The question becomes, can PSD, at its current resource level, adequately administer and 

enforce a dealer statutory trust? Or, will the agency require additional staff and funding? 

b. Effectiveness of Statutory Trusts in Other Segments of Agriculture 

PSD posed the following set of questions for public comment: "How effective are statutory trusts 

in other segments of agriculture? Could similar effects be experienced under a livestock dealer statutory 

trust? Would seller recovery improve if the Secretary was authorized to appoint an independent trustee 

under the livestock dealer statutory trust?" 

There were 261 comments related to the effectiveness of statutory trusts in other segments 

of agriculture. Several commenters from the banking industry assert that statutory trusts in other 

areas of agriculture are not effective and therefore do not support the establishment of a livestock 

dealer statutory trust. These commenters pointed to the Sam Kane packer default and the number 

of livestock sellers who did not receive payment. These banking commenters wrote that a dealer 

statutory trust would limit the amount of money a buyer could borrow. Commenters opposed to 

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the creation of a livestock dealer statutory trust stated that the existence of a statutory trust does 

not in and of itself prevent nonpayment or ensure seller recovery. They state the current statutory 

trusts provide unpaid sellers with an opportunity to argue a priority claim on any trust assets that 

may exist. However, there is no guarantee that trust assets will be sufficient to pay trust claims, 

leaving unpaid sellers to make their case in court against other responsible parties. 

One commenter wrote that the dealer statutory trust proposal is an ineffective solution that 

would not have helped in situations such as the Eastern Livestock collapse. Another commenter 

wrote that using the packer trust and the PACA trust as the pattern for a dealer statutory trust 

concept is flawed. The dealer segment of the livestock industry has different issues than the packer 

segment or the fruit and vegetable industry. This commenter mentioned differences to consider, 

including perishability of commodities, number of buyers and markets, and varying levels of 

competition. 

For example, sellers of calves, stockers and feeder cattle have many options and locations 

to sell their cattle. They have the ability to choose their buyers, the option to reject payment terms 

offered, and they have the ability to set the payment terms or requirements for their buyer. Since 

livestock dealers are already regulated by PSD, sellers have a right to hold the livestock dealer 

accountable for being bonded and making prompt payments. Sellers can file a complaint with 

PSD to investigate instances of non-payment or late payment and can make a claim on the bond 

set by PSD for that livestock dealer. 

Some commenters expressed concern over the speed at which cattle and cash move through 

a dealer' s operation, arguing that neither an independent trustee nor the trust itself could keep up. 

One commenter asked whether they have thought through how it would work in a day-to-day 

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manner, how much time it takes for everyone to set up a trust, and whether the trust can really keep 

up with the movement of all the transactions. 

Commenters also argued that regulating all buyers was not the answer and only the buyers 

who don't pay should be punished. At the same time, another commenter said insufficient bonding 

is the problem, but acknowledged that raising bond requirements would increase the capital 

requirement and drive small dealers out of business. Many commenters were concerned that a 

livestock dealer statutory trust would limit the amount of money a buyer could borrow, which in 

turn would decrease the value and create a hardship for all producers of livestock. 

One commenter raised concerns of the unintended consequences a livestock dealer 

statutory trust would have in areas such as title insurance. The commenter stated, "Following court 

cases like Kim141 and Chiquita Fresh, 142 title insurance companies have also become increasingly 

concerned that PACA Trust (and if passed, Dealer Trust) claims, which are not required to be 

recorded in any real estate records, could nonetheless impact lenders' and owners' real estate title 

policies. Accordingly, a number of national title companies have begun to include title exceptions 

for potential PACA Trust claims (as well as claims under similar statutes such as the Packers and 

Stockyards Act and in the future Dealer Trust) on such policies. Evolving case law has given rise 

to uncertainty as to the reach of the P ACA, PSA and possibly the proposed Dealer Trust and the 

assets affected thereby. In a lending context, this uncertainty gives rise to increasing costs, 

additional documents and due diligence considerations and, in a title insurance context, the 

changing legal landscape has already prompted title companies to add a standard exception to 

owners and lenders policies for similar federal and state statutes." 

141 The Bank of New York, as Trustee, for the benefit ofCWMBS, Inc. v. Kim, Index No. 1443-2008 (N .Y. Sup. 

Ct. filed Apr. 3, 2013) (County of Rockland). 142 Chiquita Fresh N. Am., LLC v. Fierman Produce Exch. , Inc. , 198 F. Supp. 3d 171 (E.D.N.Y. 2016). 

109 
This commenter was referring to a series of cases in which courts have imposed the P ACA 

Trust on real property and other assets. In a recent case, a District Court issued a preliminary 

injunction on transfer of a litany of assets, including real property (both commercial and 

residential), office equipment, automobiles, severance and retirement benefits, and bank 

accounts. 143 

Other commenters wrote favorably about the effectiveness of the packer statutory trust, 

some citing Sam Kane as a success story. These commenters noted that the "statutory trust process 

works if industry participants allow it to work and file timely claims. They note that there has been 

a slow pay problem at the Sam Kane plant for many years, but also that Sam Kane is vital to the 

South Texas feeding industry. Because ofthat, some feeders went to great lengths to keep the plant 

open, buying cattle, and rapidly losing money to the detriment of the packer trust. When a trustee 

is allowed to and even encouraged to operate such that trust assets are dissipated, the statutory trust 

cannot be blamed when recovery is less than 100%." Commenters noted that the packer statutory 

trust will ultimately be responsible for sellers receiving more than they would have as unsecured 

creditors. See Sam Kane discussion above. 

One commenter wrote that in his expenence, the packer statutory trust has worked 

remarkably well. The packer trust will not provide protection for unpaid sellers that fail to file 

claims in a timely manner or that otherwise fail to meet the statutory requirements; but, when 

claims are filed on time and other statutory requirements are met, the packer trust has proven itself 

to be an extremely valuable tool for unpaid cash sellers of livestock. 

Commenters described their positive experiences with both the packer statutory trust and 

P ACA trust. In particular, one commenter said he filed a trust claim with PSD when a packer was 

143 Epic Fresh Produce, LLC v. Olymp ic Wholesale Produce, Inc., 2018 WL 1311994 (N .D. 111. Mar. 7, 2018). 

110 
very slow in paying for livestock, and "[i]t wasn't long and we had our money." Another 

commenter stated they received all of the money owed within six months after timely filing a 

packer trust claim. Another commenter described their experience this way: "We filed our Packer 

Statutory Trust claims with Packers and Stockyards and notified Bartels. 144 Because ofthe [packer 

statutory] trust, we didn't have to sue the packer, we didn't have to go to court, we had zero legal 

expenses, and never had to worry about a preferential transfer claim. It took a few months for the 

process to work its way out, but in the end, we received full payment for what we were owed." 

One commenter described the success of the P ACA trust and the similarities of the livestock 

industry and compared to those the produce industry was facing when P ACA was seeking to 

establish a trust. The commenter described the success of the PACA trust, stating: "Actually, the 

PACA Trust has made for a stronger industry, and at the end of the day with those dollars flowing 

back to the farmer who produced the crop, it ensures they get paid for their efforts to raise and sell 

a crop. This Trust tool has helped farmers stay in business. The same benefit by implementing a 

similar Tnist for cattle dealers can also protect the entire supply chain to insure an even more 

vibrant industry." Another commenter stated, "The produce industry is so pleased with PACA in 

the U.S. that an attempt is in process to expand the program to sales ofproduct to Canadian buyers 

as well." 

Another commenter stated, "After all, shouldn't the producers who raised the animals, or 

the livestock markets who paid these producers and sold the livestock on their behalf, be paid 

first?" One commenter noted that the packer trust is an incredibly valuable tool and the dealer trust 

should be no different. He said he knew of several trust situations where markets received 100% 

recovery after filing packer trust claims. 

144 See https://www.ams.usda.gov/content/usda-assist-ranchers-bartels-packing-claims. 

111 
On the issue of appointing an independent trustee, one commenter had first-hand 

knowledge of a successful trust situation involving Bartels Packing where a third-party trustee was 

appointed. 145 This commenter recommended including a provision to appoint a neutral trustee in 

any legislation to create a dealer statutory trust, and encouraged lawmakers to consider modifying 

the packer statutory trust to do the same. 

Another commenter had a successful experience with the packer statutory trust in the case 

of the Future Beef Operations, LLC, 146 bankruptcy. This commenter noted that he represented a 

number of feedlots that had not been paid for livestock. When all was said and done, from a 

combination of the surety bond and packer statutory trust, the feedlots collected funds equal to 

93% of the total amount owed. A majority of those funds came from the packer statutory trust. 

The commenter noted as well that the feedlots were able to avoid preferential transfer claims for 

the payments they had received. 

In another packer statutory trust case, the commenter represented five livestock markets 

that had not been paid for livestock purchased by a packer, Agriprocessors, Inc. 147 Because of the 

packer statutory trust, all five of those livestock markets collected 100% of the funds due to them 

and avoided preferential transfer claims for payments they had received. 

Several commenters discussed initiatives taken at the state level. On~ commenter described 

a solution the State of Florida has implemented. "In Florida, we have expanded our state lien law 

to give sellers priority in livestock. This is a positive step and we have not yet experienced 

145 Defunct Oregon beef packer seeks to pay out $600,000, Capital Press, June 22, 2018. 

h ttps :/ /www. cap i talpress. com/ state/ oregon/ defunct-oregon-beef-packer-seeks-to-pa y-o ut/arti c I e afc2f6 72-840 8-

593 a-8bd f-1 f45e380a0ed .html 146 Future Beef Operations, LLC was a vertically coordinated production to retail beef system that filed for 

bankruptcy protection in 2002 after less than a year in business. 147 Agriprocessors, Inc., of Postville, Iowa, filed for Chapter 11 Bankruptcy Protection in 2008. Twenty-four sellers 

filed valid claims totaling over $2 million. All of the claimants received I 00% of the amount owed. See 

hrtps:/ /www.meatandpoultryonline.com/doc/livestock-sel lers-to-receive-2m-in-000 I . 

112 
unintended consequences as a result. However, it is a limited tool when cattle are purchased by 

people outside the state, which is not uncommon with Florida calves purchased to be backgrounded and fed out in other regions of the country." 

Another commenter described a similar solution the State ofOklahoma implemented. "The 

purpose of the Oklahoma Act is to protect the rights of Oklahoma livestock owners by granting a 

statutory lien to secure payment of the sales price in the transaction between livestock owner and 

buyer. The intended benefit of the Oklahoma Act was to put Oklahoma producers in the position 

ofholding a secured claim in either (i) the livestock sold, or (ii) the proceeds from the resale ofthe 

livestock. The statutory lien goes away upon full payment ofthe sales price to the livestock owner. 

An important aspect of the Oklahoma Act is to ensure that the statutory lien does not 

interrupt commerce or discourage the resale or secondary purchase of the livestock. As noted, the 

Oklahoma Act has been in effect for nearly eight (8) years helping protect the integrity of 

Oklahoma livestock transactions." 

One commenter who had personal experience with the P ACA Trust supports the proposed 

livestock dealer statutory trust and describes his experience. "With the current Federal Register 

notice from the cattle dealers on the feasibility of a Trust, I could not help but to reflect on the 

similarities between the marketplace dynamics in 1982-1983 where the produce industry was 

seeking the hand-up from government to allow industry to have a self-help tool (Trust) in order to 

position the produce industry to control their own destiny and here is the cattle industry in 2019 

endeavoring to do the same thing. Actually, the PACA Trust has made for a stronger industry, 

and at the end of the day with those dollars flowing back to the farmer who produced the crop, it 

ensures they get paid for their efforts to raise and sell a crop. This Trust tool has helped farmers 

113 
stay in business. The same benefit by implementing a similar Trust for cattle dealers can also 

protect the entire supply chain to insure an even more vibrant industry." 

One state fruit and vegetable association provided detailed and extensive comments 

describing the success of the P ACA Trust and how the livestock industry could experience the 

same success: 

"Within PACA there is the concept ofthe PACA Trust, the purpose of which gives 

produce sellers a legal and important priority to be paid first, before other creditors of a 

produce buyer such as lenders who provide secured financing to the buyer. The provisions 

of PACA have resulted in the collection of millions of dollars in past-due receivables that 

otherwise would have had no chance of been recovered. 

The P ACA law that the produce industry is fortunate enough to benefit from has 

three main important features . First, PACA makes it illegal to engage in the produce 

marketing industry without first obtaining and complying with the USDA's licensing 

requirements. Second, P ACA makes various types of unfair trading conduct illegal, and 

provides an administrative complaint procedure as an alternative to enforcing P ACA in a 

lawsuit in court. Third, and as important as anything, is the fact that P ACA establishes the 

aforementioned P ACA Trust, which maximizes the likelihood that sellers of produce will 

be paid in full before any other creditors of the buyer. These components have repeatedly 

protected produce sellers over the years, and these very types of protections are the same 

ones that seemingly could be most valuable to sellers of livestock products as well. The 

produce industry is so pleased with PACA in the U.S. that an attempt is in process to 

expand the program to sales of product to Canadian buyers as well. 

In other industries, when invoices go unpaid the supplier is simply owed money. 

Produce suppliers that proper[ly] invoke their Trust rights, however, are not simply owed 

money; under the PACA Trust the receiver is actually holding the supplier's money. This 

difference is pivotal; in the eyes of the law it's as if the delinquent buyer is holding the 

produce supplier' s wallet. The supplier's wallet is not part of the buyer's assets; it is not 

the buyer's money and that money needs to be returned to the supplier before the interests 

of ordinary, or even secured creditors, are considered. 

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P ACA for the produce industry came about in response to the increasing number 

of "no pay" situations whereby produce sellers were not paid or short paid, and/or being 

relegated to "the back of the line" as unsecured creditors when insolvent buyers filed for 

bankruptcy. Subsequently, Congress created the statutory PACA Trust that the produce 

industry enjoys today. When produce is loaded or delivered (depending on the contract 

wording and when the seller obtains ownership), the seller is deemed to have only 

transferred legal, but not equitable, title to the produce. The buyer is deemed to be a P ACA 

trustee who holds the produce in trust for the seller, as a PACA Trust beneficiary. The 

Trust continues in existence until all sellers of produce to the buyer are paid in full. 

The Trust is not a subsidy; rather, it is a realization that the produce industry (and 

seemingly the livestock industry too) is unique. For the free trade of fruits and vegetables 

to succeed (and meat products theoretically), it has been deemed important that pay within 

well understood parameters, no more than 30 days for produce, be law. If the subject were 

steel or aluminum, prompt pay would not be such a big deal. But produce (and meat 

products) are living things, commodities that quickly change and spoil, hence the need for 

prompt pay. The produce industry recognizes the importance of the Trust, all parties 

understand how it works, and the courts have given it credibility and validity. 

"Congress was kind to the produce industry by giving produce sellers trust 

protection when buyers do not pay. When the PACA Trust rights are used properly, 

produce sellers have an unprecedented opportunity to recover monies when their buyers do 

not pay or go out of business. The P ACA Trust gives the produce industry a measure of 

financial security. The entire industry, buyers and sellers alike, benefit when produce 

revenue is returned to the produce supply chain. In the past three years, USDA resolved 

approximately 3,350 PACA claims involving more than $63 million. It seems as though 

the livestock industry overall could benefit in a similar manner if a livestock dealer 

statutory trust were established in a means comparable to that of the PACA Trust." 

Several comrnenters, including bankers, countered the claims that banks would limit 

lending to buyers. Comrnenters stated that comfort in lending to a producer would certainly be 

enhanced by mitigating the risk of buyer payment. Comrnenters cited the packer statutory trust 

115 
and P ACA statutory trust as being effective in similar circumstances within the agricultural 

industry. 

Commenters who addressed the question of whether authorizing the Secretary to appoint 

an independent trustee under the livestock dealer statutory trust would improve seller recover had 

mixed opinions. Commenters found the idea "interesting," but felt it would not improve recoveries 

for unpaid sellers. Their reasoning was that any independent trustee would have to be paid a fee 

for their services. That fee would be paid from trust assets, thus reducing the total funds available 

to unpaid · sellers. Some commenters suggested the Secretary should instead share more 

information with the unpaid sellers regarding the solvency ofthe operation and the amount oftrust 

assets. Sharing such information would allow sellers to make better business decisions and allow 

unpaid sellers to initiate the claims process sooner. 

Some commenters suggested that while appointing an independent trustee would improve 

the trust claim process it, doesn't increase the funds available and could increase legal costs to the 

seller. Commenters said that the dealer statutory trust would likely increase the complexity of 

recovery and legal bills, creating additional financial burdens on unpaid sellers. 

Other commenters supported the concept of appointing an independent trustee. One 

commenter representing livestock markets suggests a dealer statutory trust should grant the 

Secretary the clear authority to enforce the trust, including appointing an independent trustee. 

Another commenter proposed that the dealer statutory trust language automatically appoint an 

independent trustee. In packer statutory trust situations involving bankruptcy, the bankruptcy 

trustee separates packer statutory trust assets from other assets, making clear the priority unpaid 

livestock sellers have in those assets. Commenters agreed it would helpful to have a neutral third 

party filling this role. 

116 
One commenter wrote that an independent trustee should be appointed to oversee the dealer 

statutory trust to assure trust assets are segregated and not released until unpaid cash sellers of 

livestock are made whole. Another commenter preferred an independent trustee instead of having 

the defaulting dealer overseeing trust assets. An independent trustee would give priority to unpaid 

livestock sellers and properly apply payments according to the trust. 

Commenters who support the concept of an independent trustee still have concerns. One 

commenter had concerns with who would pay for the appointed trustee. This commenter wrote, 

"in some instances, this may facilitate seller recovery given the large volume of sales a typical 

dealer may execute in a short period of time. Of course, the addition of such authority should be 

balanced against USDA resources and whether the agency, the defaulting dealer, or the unpaid 

seller would have to pay for the appointed trustee." 

One commenter suggested the state department of agriculture for the dealer's principal place 

of business be the trustee, or alternatively, the PSD serve in that role. Another commenter said that 

whether an independent trustee should be named depends on the complexity of the situation . . "Ifit 

is just one set of cattle or a couple sets, then the dealer trust priority is likely enough. However, in 

complex situations, an independent trustee might help. The issue is that someone has to pay the 

trustee. Perhaps a trustee should be appointed in situations where doing so has a high likelihood 

of improving recovery beyond the costs of the trustee." 

c. Seller Recovery in The Event of a Livestock Dealer Payment Default 

PSD posed the following question for public comment: "How would the establishment of a 

livestock dealer statutory trust affect seller recovery in the event of a livestock dealer payment 

default?" Approximately 842 commenters addressed this question. Of those, 637 commented in 

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support of the establishment of a livestock dealer statutory trust, while 204 were opposed and 2 

comments were neutral. 

Those who expressed support generally agreed that the creation of a statutory trust would 

significantly improve recovery for unpaid livestock sellers in the case of a livestock dealer default. 

Commenters assert that current law does not adequately protect unpaid livestock sellers and used 

the example ofmeager payouts from bonds in dealer defaults providing recovery of pennies on the 

dollar. 

Commenters often wrote of their personal experience with dealer default situations, many 

citing instances where they lost money and were not made whole from existing bond coverage. 

There were commenters who were directly impacted by the Eastern Livestock failure and who 

believe that a dealer trust would have helped them recover a larger portion ofwhat they lost. Some 

commenters compared their experience with a packer payment default and the positive outcome 

because ofthe packer statutory trust, receiving full payment and incurring no legal expenses. 

Commenters that wrote to oppose the establishment of a livestock dealer statutory trust 

addressed this question using the recent Sam Kane packer failure as an example. Most described 

the packer trust as resulting in a poor outcome for livestock sellers. The Kane situation is described 

in further detail earlier in this report. 

Some commenters opposed a dealer statutory trust because they feel that dealer payment 

defaults are not a significant problem in the industry when taking into consideration the total dollar 

volume traded annually. One commenter wrote that historical losses from livestock sales to dealers 

have been 0.01 % of the total value of livestock traded over the past 18 years. 

A few commenters suggested that instead of enacting a livestock dealer statutory trust, a 

better option would be to increase the required bond coverage for dealers. Some suggested that an 

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alternative already exists in the form of an insurance product that could be used instead of a 

statutory trust. 

Still other commenters opposed the creation of a dealer statutory trust stating that markets 

ought to be more aware of risks in their operations. A few commented that PSD just needs to 

enforce current laws. 

d. Preferential Transfers in Bankruptcy 

PSD posed the following question for public comment: "How would the establishment of a 

livestock dealer statutory trust affect the treatment ofsellers oflivestock as related to preferential 

transfers in bankruptcy?" 

Public comments to the Federal Register notice included 120 responses to the preferential 

transfer issue. Nearly all commenters wrote that a dealer statutory trust would benefit livestock 

sellers by decreasing the chance for "clawback" by the Bankruptcy court in dealer bankruptcy 

cases. 

One commenter said, "It would prevent a preferential transfer from affecting unpaid sellers 

because those funds would be trust funds, which is highly beneficial. Unpaid sellers of livestock 

should have access to funds they are ·owed without the issue of having 90-days' worth of money 

be clawed back by a bankruptcy trustee." Some responders had first-hand experienced the 

"clawbacks" of a dealer bankruptcy, one stating, "we had ... a default for about $700,000. The 

trustee came after us for preferential transfer. We fought it and ended up having to pay $20,000 to 

settle the claim. I shouldn't have had to pay this but did so willingly. Going back 90 days of 

business with this buyer would have ruined my business. The animals involved were fat cattle and 

cows. Had a packer bought them directly from us, we would have been protected by the packer 

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trust even if the check had been bad. Since there was a dealer in the middle, we didn't get paid and 

had to deal with preferential transfer. " 

e. Exempting Low Volume Dealers from the Trust 

PSD posed the following set of questions for public comment: Should dealers with average 

annual purchases under a de minimis threshold be exempt from being subject to the livestock 

dealer statutory trust; What purchase level should be considered for exemption; and What effect 

would such an exemption have on the effectiveness ofa livestock dealer statutory trust?" 

There were forty-three ( 43) comments that specifically addressed a de minimis threshold 

for a dealer statutory trust. Nearly all commenters suggested either there should be no threshold, 

or if a threshold was included, it should be set at a low purchase volume, typically $250,000 

annually or less. 

Commenters to the Federal Register notice were split on whether there should be a 

threshold and those who did suggest a threshold thought it should be a low threshold. One 

commenter summed things up saying, "a bad check is a bad check. All defaults are harmful to my 

business and my customers, and I believe I should have the ability to get the money I am owed." 

Several commenters suggested a low threshold by highlighting the difference between dealers who 

deal in different species, with one commenter saying, "for a market like mine that sells sheep, there 

are a handful of buyers that don't pile up in terms of a ton of money a year purchased but still run 

a risk of doing harm to our business if they ever were to default." Another said, "For those selling 

sheep and goats or working with smaller operations, a significant amount of business could be 

done without meeting the threshold. Any default is a bad situation, and I think there should be 

protection for all transactions." 

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Still another commenter said he "would like every dealer to be subject to the trust. Twentyfive or fifty thousand dollars is a lot to a small operation." One commenter said that his business 

has struggled more with small dealers than with large dealers and therefore did not believe there 

should be a threshold. 

Some commenters tried to balance the need for trust protection with the potential burden it 

could place on small businesses. One said, "I believe the threshold for the law should be $250,000 

of annual sales. This would catch more dealer transactions but not make the trust a barrier for 

business." Another said, "I believe the threshold should be $250,000 of annual sales, which would 

include most buyers of cattle doing a dealer business." 

Some commenters discussed that dealer purchase volume can change from year to year. 

One wrote, "I think it should be low if it exists at all. What an established sale barn could handle 

as a hit, another might not be able to. For a small barn selling just 300 head a week, a default from 

a small dealer might absolutely wreck their ability to stay in business. Also, it would be important 

that the threshold be updated to reflect current buying levels and not on last year's volume ifthere 

was a change in buying. A little dealer can become a big dealer overnight. Someone who spent 

just $50,000 on cattle last year can all of the sudden get to a $250,000 level in just a day of 

purchases. That isn't that many cattle." Another commenter said, "I think a threshold will leave 

loopholes and uncertainty. Dealer businesses may differ from year to year and may also not share 

the fact that their businesses are not subject to the dealer trust openly with producers or markets. I 

think that it will just cause too much extra work, research, and uncertainty." 

Some commenters wrote of personal experiences with dealer defaults. One commenter 

said, "I do not think there should be a minimum threshold under which dealers would not be subject 

to the trust. The volume an individual buyer can change rapidly. We had a situation like this where 

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a small buyer came to the sale one day and purchased a couple loads of cattle which they then sent 

to another sale barn to re-sell. They never paid us for those cattle ... Because of this experience, I 

would recommend the Dealer Statutory Trust apply to dealers of all sizes." 

One commenter who identified herself as a producer said, "I don't believe any dealers 

should be exempt from this law, regardless of their level of purchases. It only takes one big, bad 

transaction to ruin a producer or a market's business." Another commenter representing a producer 

organization wrote, "Exempting small dealers from the trust would not provide sellers with more 

protection and would be extremely difficult to regulate. How would P&S ensure that the level was 

not exceeded? How would P&S notify sellers that a certain dealer was subject or not subject to the 

trust for purposes of filing a claim?" 

One organization suggested that because on average dealers purchase smaller volumes of 

livestock annually than packers, the threshold for a dealer statutory trust should be less than the 

$500,000 packer threshold. The organization suggested that if a threshold is to apply, a possible 

level could be $250,000, which is the threshold below which online and video auctions are not 

considered market agencies. 

148 

One commenter suggested that sophisticated dealer businesses may set up multiple 

operating units, each separately registered, in order to keep purchase levels below any threshold 

that may apply, and therefore keep their business exempt from the statutory trust. 

Finally, a lender commented that even though payment problems can occur with any dealer, 

they tend to be more prevalent among smaller volume dealers, therefore any "exemption would 

seem inequitable." 

148 7 U.S.C. 20l(c). 

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f. Buyer and Seller Behavior in Markets for Livestock 

PSD posed the following question for public comment: "How would the establishment of a 

livestock dealer statutory trust affect buyer and seller behavior in markets for livestock?" There 

were approximately eighty-five (85) commenters who specifically addressed this question. Of 

those, 58 wrote in favor of the dealer statutory trust, 24 opposed, and 3 did not express an opinion. 

Commenters displayed wide-ranging opinions on this topic. A majority ofthose commenting wrote 

that implementing a dealer statutory trust would have little to no impact on buyer and seller 

behavior. A number of other commenters felt the dealer statutory trust would have serious 

detrimental effects on the livestock industry. Commenters from both points of view expressed 

well-reasoned arguments in support of their positions, and some who were opposed to the dealer 

statutory trust offered alternative solutions. 

One commenter echoed the sentiment of most who wrote in support of a dealer statutory 

trust when he said, "I do not believe that the implementation of a dealer trust would dramatically 

change the way we do business or the way dealers conduct business in our markets." Another 

commenter pointed out that there is a "hole in the system," meaning that packers are required to 

have bonds and are subject to a statutory trust, auction markets are required to have bonds and 

maintain a custodial (trust) account to protect livestock sellers, but the only requirement imposed 

on dealers is the bond, which often does not provide full protection to sellers. If the bond 

requirement for packers and auction markets alone is not enough to protect sellers, then it isn't 

enough to protect sellers in transactions with dealers either. 

One commenter said that, "as long as buyers continue to pay for their livestock, nothing 

will be different. The only change we will notice is that sellers to dealers will improve their 

recovery in the event that dealer defaults." Another commenter added that the statutory trust would 

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stop risky buyers from coming and buying cattle they can' t pay for because they will know there 

is a process in place for that money to be recovered. 

One commenter offered an observation regarding a state law that provides similar 

protection. The commenter wrote that, "in 2011 , Oklahoma changed our lien laws to give unpaid 

livestock sellers, their agents (livestock auctions), and lenders priority in livestock and proceeds 

until they are paid for the livestock. To this day, eight years later, I have not experienced or seen 

any changes in credit availability or day-to-day behavior because of this change in Oklahoma law. 

The dealer [statutory] trust would be similar but would expand the protection to apply across the 

United States." 

Several commenters wrote that they, "don't believe the establishment of a dealer trust 

would change the behavior of either buyer or seller." These commenters referenced the auction 

markets' good business practices, and said the dealer statutory trust would provide another tool in 

the case of default. The commenters noted that the dealer statutory trust would protect not only 

auction markets but anyone selling livestock to a dealer, including farmers, ranchers and even 

other dealers. 

One commenter noted that, "a dealer trust would have saved our family millions ofdollars. 

Another commenter noted that he, as a market owner, would not change the way he does business 

or relax his business practices if a dealer statutory trust was enacted. He expects payment by the 

next business day after sale and that won't change. But, he noted, defaults can happen even when 

you are careful. "This is where the dealer trust comes in, not to guarantee 100 percent payment, 

but to add a layer of recovery in addition to the bond. 

Among those who felt the livestock dealer statutory trust would have a negative impact on 

buyer and seller behavior was a dealer who wrote that he has been in the business for a long time 

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and takes pride in the value and integrity of the service he provides to the industry. He believes 

the dealer statutory trust would, "effectively close our doors" because he wouldn't be able to 

acquire credit from any bank. This commenter said the statutory trust would disrupt or shut down 

all livestock dealers, causing every animal to be sold through auctions, which he described as a 

very inefficient marketing method for producers. The commenter recommended requiring larger 

bonds for dealers or setting up a mandatory fund that all dealers pay into for use in the event of 

defaults. 

Access to credit was a common theme among commenters who opposed the dealer 

statutory trust. One commenter wrote that the dealer statutory trust, "would restrict the ability for 

many dealers to get credit from commercial banks. No banker would loan money to a dealer if 

they were not able to secure a first lien on their livestock. Most buyers would not buy cattle from 

a dealer if this law was in place, because of the uncertainty of clear title from a dealer." Finally, 

this commenter argued that the packer statutory trust did not work when Kane 149 went into default. 

Some commenters provided additional detail on the credit concerns stating that fewer 

buyers could obtain financing, which would lead to less competition and therefore less money to 

producers. Commenters said the answer to the problem is good business practices by auction 

markets and producers. One commenter said the dealer statutory trust is a step in the wrong 

direction; it will incentivize more risk taking and bad business behavior, and ultimately offers no 

assurance that recoveries will improve in cases of default. 

Several livestock trade organizations submitted comments. The majority were supportive 

of a dealer statutory trust. Organizations opposed to the concept made several arguments regarding 

additional burdens such a trust would impose on the industry. One organization wrote that 

149 Sam Kane refers to Sam Kane Beef Processors, LLC, a Texas meatpacking company which was the subject of 

numerous packer trust claims between 2016 and 2018. Sam Kane is discussed in greater detail earlier in this report. 

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additional seller record keeping would be required and that buyers would have to be treated 

differently based on their dealer or non-dealer status. This organization thought the thirty-day150 

window for giving notice of a claim might have a negative impact on buyer/seller relations "much 

like a false accusation of wrong doing." 

Another organization expressed concern that "a dealer statutory trust would have the 

unintended consequence of reducing the number of buyers at livestock markets and in the country 

trade, especially in Texas and Oklahoma. While a dealer statutory trust may provide some 

livestock markets with an added sense of security and deter some unethical dealers, the additional 

capital requirement would likely force a number of smaller, reputable dealers from the market." 

This would "limit the number of buyers in livestock auctions and merchandisers of feeder and 

stocker cattle, causing a significant market disruption." The commenter wrote that a dealer 

statutory trust "would significantly decrease the trade between dealers and stockers/feed yards." 

Other organizations commented more positively regarding buyer and seller relations in the 

event of a livestock dealer statutory trust. One organization wrote, "We feel that creating a dealer 

trust mitigates risk in the livestock industry but will not significantly change the way our producers 

are able to market the product of their hard work and stewardship. People will continue to raise 

and sell livestock, but now they will also be given priority if a dealer defaults." Another 

organization said, "For producers who sell through a sale barn, a dealer trust will help ensure that 

sale barn stays in business, which is vital to farmers and rural communities. Without these barns, 

producers lose an important marketing outlet and tool for price discovery. A dealer trust will not 

significantly change the way the livestock industry does business. People will continue to raise 

150 The Federal Register notice did not mention specific details of how a dealer statutory trust would operate. The 

commenter may be assuming a dealer statutory trust would have the same filing requirements as the current packer 

statutory trust, for which claims must be filed within 30 days of the date payment is due. 

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and sell cattle just as they do today. The only thing different is that the seller oflivestock will now 

be given priority in a dealer default. It has no role unless a dealer defaults, essentially sitting on 

the sidelines until it is needed." 

Some organizations noted that the "livestock industry can be a very risky business." One 

organization said that "the best way to manage risk is to mitigate it. Not only will a dealer trust do 

that, but it will do so without disrupting regular business practices in our industry. We do not 

believe that a dealer trust will change how anyone in our industry does business, and see this as 

yet another value-add of a dealer trust." 

One organization asserted the dealer statutory trust would have a positive impact on seller 

behavior, as it would allow sellers to be more confident that payment would be recovered in the 

event of a dealer default. Another organization echoed that, stating, "Relations between dealers 

and sellers would improve." 

Overall, organizations in favor of the dealer statutory trust favor this idea because it 

improves seller recovery without substantial changes to the structure of the livestock marketing 

industry and behavior of participants. One organization reiterated that "individuals would continue 

to buy and sell livestock just as they do today. " "The only real change is who takes priority in 

livestock and proceeds/receivables in the event of a dealer default." 

One commenter offered the following to illustrate support for a dealer statutory trust. "In 

the case of already existing statutory trusts in adjacent industries, the mere existence of a statutory 

trust and related risk of claims have caused payments to be procured that may not have been 

otherwise. For example, [auction markets] have experienced packers who have been slow to pay 

or presented dishonored instruments suddenly paying for livestock because the unpaid seller filed 

a packer statutory trust claim or gave notice of intent to file such a claim." Sellers to a defaulting 

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dealer would likely also act more quickly to remedy the issue if the timeframe for making a dealer 

statutory trust claim follows that of a packer statutory trust claim. In the context of the packer 

statutory trust, an unpaid seller must give notice within thirty days of the final date for making 

prompt payment in accordance with Section 409 of the Packers & Stockyards Act if a payment 

instrument has not been received or within fifteen days ofreceiving notice that the dealer's payment 

instrument has been dishonored. This is quicker than the 60-day requirement to file a valid bond 

claim. 151 If a dealer statutory trust is created, unpaid sellers would be incentivized to file timely 

claims, which could put other industry participants on notice of a default issue more quickly. Also, 

if a dealer statutory trust is created, sellers would likely be less inclined to enter into credit 

agreements for fear of losing their statutory trust rights. Sellers who have entered into credit 

agreements with buyers lose their status as a "cash seller" and are thus no longer statutory trust 

beneficiaries. The creation of a dealer statutory trust could encourage dealers to keep clearer 

records. Although a dealer statutory trust would not require dealers to operate a separate account 

segregating their livestock dealer activity from other non-dealer (producer) activity, the existence 

of a dealer statutory trust could encourage dealers to keep separate accounts in order to segregate 

potential trust assets from personal or non-dealer assets. Operating a separate dealer business 

account is a best practice already in use by many dealers. Finally, a dealer statutory trust could 

make dealer defaults more manageable in size. Under current law, a dealer's lender is in an unfairly 

advantageous position with respect to priority in livestock the dealer never paid for and knowing 

well before producers or livestock markets when a default is likely to occur. This unfairness in 

priority and knowledge of an impending default have played out such that a dealer's lender might 

encourage increased buying activities until it selects a beneficial time (from the lender's 

151 9 CFR § 201.33 . 

128 
_perspective) to exercise its priority position under the Uniform Commercial Code (UCC). At that 

point, the lender grabs the money in the dealer's bank account, the dealer's livestock on-hand, and 

the receivables and proceeds from the dealer's already sold livestock. This leaves the producers 

and markets who sold those livestock to the dealer unpaid. If this priority was adjusted, lenders 

would no longer have an incentive to draw out the situation and encourage irresponsible buying 

activity. Lenders would likely instead adjust a dealers financing in a timelier manner, resulting in 

a smaller total default." 

Commenting lenders generally opposed the concept of a livestock dealer statutory trust and 

wrote that it would disrupt the livestock industry and limit credit availability. One lender noted 

the, "dealer trust will not deliver the safety net to sellers that it proposes. Its first limit is that it 

does not address sales to anyone but a dealer. More importantly, it cannot deliver on its promise 

of protection of payments to sellers who sell to dealers. A mandatory law that promises the kind 

ofprotection that dealer trust proponents are promoting needs to undeniably deliver it or a seller's 

reliance on it will be even more dangerous." 

Another lender said it would demand additional collateral ifit was not in a first lien position 

on livestock inventory. A different lender said that if bankers can't be assured that the livestock 

they are financing "are free of liens when we pay for them, I don't believe bankers will continue 

to finance livestock." The result is lower available credit for livestock producers at all levels of 

production and marketing. 

Some lenders also suggested that in the long term, a dealer statutory trust would result in 

less competition and lower prices for livestock. Others commented that if dealers were adequately 

bonded, the problem could be solved. One suggested that the dealer should be bonded and backed 

by an insurance policy, similar to what is being used with buyers of grain. 

129 
One lender acknowledged that most of its customers are livestock sellers and that a dealer 

statutory trust would not likely affect present behaviors. 

A feedlot operator commented that the "floating trust" nature ofthe proposal would hinder 

relationships between sellers and buyers, stating that "buyers may be reluctant to buy from dealers 

because it is possible that claims from suppliers to the dealers could occur after the buyer concludes 

its transaction with a dealer and might even be asserted for sales the buyer was not involved in. If 

the statutory trust does not contain strong protections for buyers who pay dealers but then are sued 

by suppliers the dealer failed to pay, then we believe that buyers will be less likely to buy from 

dealers. This could reduce the number ofmiddleman type sellers in the marketplace which has the 

potential to increase transaction costs at the expense of cattle producers." 

An attorney with experience in Packers and Stockyards Act matters wrote, "until there is a 

breach of a sale contract there will be little if any impact on buyer and seller in the livestock 

markets. The proposed dealer statutory trust is patterned after the packer statutory trust, which has 

been a significant feature of the Packers and Stockyards Act since 1976. The livestock industry 

and its buyer/seller participants have been operating smoothly with this feature for over four ( 4) 

decades. The dealer statutory trust would not change this. The only impact is what happens in the 

event of non-payment, and here the Dealer Trust would bring significant benefits to the market." 

130 
g. Credit Availability 

PSD posed the following question for public comment: " What potential effects would a 

livestock dealer statutory trust have on credit availability, including impacts on lenders and 

lending behavior and other industry participants?" 

Concerns about changes in lending behavior due to creation of a statutory trust are not new. 

In considering the PACA trust in 1983, Congress made the following finding: "The Committee 

believes that the statutory trust requirements will not be a burden to the lending institutions. They 

will be known to and considered by prospective lenders in extending credit. The assurance the 

trust provision gives that raw products will be paid for promptly and that there is a monitoring 

system provided for under the Act will protect the interests of the borrower, the money lender, and 

the fruit and vegetable industry. Prompt payment should generate trade confidence and new 

business which yields increased cash and receivables, the prime security factors to the money 

lender." 152 

Approximately 960 commenters addressed this question. Of those, 431 believed a dealer 

trust would potentially impact credit availability and lending behavior, while 529 believed there 

would be no, or minimal, impact. 

In general, those commenters who believe that any impact on credit availability and lending 

would be minimal were in favor of implementing a dealer statutory trust that would give unpaid 

livestock sellers first priority on livestock in the event of a dealer default. Several discussed the 

Oklahoma lien law that has been in place for eight years and reported it has had no significant 

impact on credit availability. 

152 H.R. Rep. No. 543, 98th Cong., 1st Sess. 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405,407. 

131 
Commenters who believe a dealer statutory trust would have an impact on credit 

availability and lending are geographically concentrated in Texas and a few surrounding states. 

These commenters believe a livestock dealer trust will create more problems than it will solve, and 

they are specifically concerned that it will result in less credit availability from traditional secured 

lenders to the livestock industry. The changing of the lien priority in default situations, giving the 

livestock seller a priority over the secured lenders is the concern. Commenters urge that 

eliminating first lien rights will lead to lending issues and will have a negative impact on producers, 

dealers and livestock markets that rely on lenders to finance their operations. 

Commenters voicing concern with the implementation of a dealer statutory trust also noted 

the vagueness of the definition of "dealer" in the Act. They argue that since there is no clear test 

to determine who is a dealer under current law, it is impossible to know exactly who is subject to 

the proposed dealer statutory trust. Unique circumstances of dealers are discussed earlier in this 

report. 

A majority of the auction markets that commented expect there would be minimal impact 

on credit availability and lending behavior, a majority of the livestock dealers that commented 

expect to experience an impact on credit availability and lending behavior. 

One commenter, who identified himself as a livestock dealer and former auction market 

owner said he discussed the potential of a dealer statutory trust with his lender, and learned it 

would not change his situation, nor should it change the credit availability for other dealers. The 

commenter said credit worthiness is based on the borrower's own history, assets and a personal 

guarantee, not on livestock for which he has not yet paid. This commenter noted that auction 

markets want as much competition as possible for producers' cattle, but that buyers should not 

have to compete against dealers who do not have the ability to pay for cattle. "Ifsomeone is lending 

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to a dealer based only on having priority in a default, that is not a good lending practice and could 

be a problem waiting to happen." The commenter said, "a dealer trust has much less likelihood to 

disrupt an individual' s buying power than other options that have been offered to address this 

issue. For example, greatly increasing the required bond levels would have the direct effect on 

dealers having to provide additional assets to warrant the larger bond. Mandating quicker payment 

as discussed below also could cause a change in the amount of livestock a dealer is able to buy. 

Neither of these options address the preferential transfer issue. Speaking of this, lenders of all sort 

should feel more comfortable in a world where money they' ve already received for livestock are 

no longer in question." 

Many commenters wrote that a dealer statutory trust would not change a lender's decision 

with its customers. One wrote that "a dealer trust should improve lending conditions for sellers of 

livestock, including livestock auctions and producers. It should not significantly change the credit 

available for dealers, unless their lenders have concerns about their current financial standing." 

Another, ..I do not believe it would affect lending relationships. Lenders will continue lending 

money to those who are qualified for those funds." 

One commenter said, "I know of very few, if any, dealers who obtain financing in today's 

world based on cash flow or their rolling inventory. Lines of credit are typically secured with hard 

assets anyway, so the trust would in no way change that lending relationship. When the discussions 

on this topic arise, the talk always seems to go to how the trust might change lending relationships 

for dealers. I would appreciate a little consideration of the relationship the rest of the industry has 

with its lenders because this threat hangs over our heads. There are far more farmers, ranchers, 

stockyards and feedlots financing through banks than there are dealers. I sincerely believe that 

133 
providing assurance that the appropriate entities would be made whole in a default would improve 

the overall access to credit in our industry." 

Some commenters noted that lenders typically lend to all aspects ofthe livestock marketing 

chain. "If someone is lending is to a dealer, there is a good chance they are also lending to 

producers and livestock markets. A dealer trust would give protection to all of those individuals 

and could be beneficial to lenders." Another wrote, "A dealer statutory trust will also stabilize 

credit availability for all parties as any default could be properly handled in a more timely and 

stable manner. " 

Several commenters mentioned discussing the issue with their bankers. One said, "A dealer 

trust would not reduce borrowing capacity for dealers. It's a non-issue for all of the bankers I have 

talked with about the topic. The bankers do not give anything up as long as their dealer customer 

pays for cattle. At the same time, a lot of ag bankers finance farmers and ranchers and have 

expressed that the law right now is not good for them and their customers. It is hard to follow the 

flow of cattle in and out ofa dealer's possession. Lenders generally don't look at those as collateral 

because of how fast they move and uncertainty about if they've been paid for. Sure, every bank is 

going to throw a blanket out to have the best position to collect any assets possible. But the bankers 

I talk to aren't going to touch a quickly rotating cattle inventory to justify the size of a dealer's 

note. They're wanting them to put up other assets that have more of guarantee ofrecovery." Other 

commenters echoed these thoughts, "we know our lenders are making credit decisions based on 

secured assets and past performance, not unpaid-for livestock and/or accounts receivable." 

Writing in opposition to a dealer statutory trust, one commenter suggested that "traditional 

lending institutions will likely exit the industry when hampered by the inability to perfect their 

security interest in the collateral pledged, i.e. , livestock and accounts receivable." The commenter 

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noted "the prompt payment for livestock requires the dealer or purchaser to pay for livestock within 

a 24-hour period. Without available credit to the dealer or purchaser through traditional lending 

institutions, the auction market will be forced to make bad decisions since the dealer trust would 

force some dealers and purchasers to slow pay the livestock auction market and make the auction 

market depend on the dealer trust to collect their money." 

Multiple lenders commented to voice opposition to a dealer statutory trust. Similar 

comments stated, "Today I write to voice my opposition to the establishment of a livestock dealer 

statutory trust. As a banker whose primary line of business is providing rural Texas farmers and 

ranchers with access to credit, I know that a livestock dealer statutory trust will have unintended 

consequences and potentially disastrous effects for my community. Practically speaking, a dealer's 

trust could displace banks from priority lien status, thus granting primary lien status to a party that 

did not take the initial risk that precipitates the loan at the beginning of the buying pr~cess. If I 

know that my priority lien on a farm product could be jeopardized through no fault of mine or my 

customer's, there would be a stark disincentive to make these types of loans. Further, if local 

community banks are dissuaded to lend because of the potential for loss from an unrelated third 

party as a result of the creation of dealer's statutory trust, it will have the effect of suppressing 

access credit in agricultural communities served by rural banks. This will not only hurt community 

banks in these communities, but, ultimately, those a dealer's trust is purported to help. A livestock 

dealer trust has the potential to negatively disrupt and impact all involved: buyers, sellers, and 

lenders." 

A commenter from the banking industry wrote, "It is important to remember that in most 

transactions, everyone has a lender, both the seller and the buyer. The current law in the livestock 

space prefers the buyer and their lender over the seller and their lender. Most everyone will agree 

135 
a farmer or rancher who raised livestock and has not been paid for the livestock (or their lender) 

should retain the right to reclaim those livestock. A dealer statutory trust would achieve this, while 

affecting the smallest necessary class of assets. A dealer statutory trust is limited to livestock sold 

in cash sales which the livestock dealer did not pay for and the proceeds/receivables from these 

livestock. 153 The livestock dealer's lender retains priority in all other assets. This change would 

not fundamentally adjust access to capital for livestock dealers. Banks typically originate loans 

based on solid forms of collateral. Even if a lender is taking into account a customer's accounts 

receivable when making a loan, these should be discounted by at least the amount ofthe accounts 

payables. So long as this is happening, no trust assets would be being taken into consideration. In 

short, dealer trust would be a positive change to the law that would help correct and imbalance 

between sellers (and their lenders) and buyers (and their lenders) without making fundamental 

changes to credit availability." 

Another banker wrote, "The Dealer Statutory Trust will provide additional recourse for the 

sale barn owner as well as all producers to help ensure payment for the livestock they market." 

One commenter suggested, "Perhaps lenders or dealers might decide that sales proceeds must be 

segregated into trust and non-trust accounts, creating a type of custodial account. For a dealer with 

multiple transactions this could be difficult to manage for both for the dealer and for the lender 

which is trying to monitor its collateral." 

Finally, a commenter who said he was both a livestock producer and a banker for more 

than 30 years said, "A dealer trust would improve recovery for producers selling livestock when a 

livestock dealer defaults. Having the ability to reclaim cattle and related proceeds would greatly 

153 This statement is factually incorrect. Under a "floating trust," all livestock inventory and proceeds/receivables are 

held in trust until all unpaid sellers are paid in fu ll. Statutory trust assets are not limited to only those 

animals/proceeds for which payment was not issued . 

. 136 
improve many of these unfortunate situations for the producer who raised the livestock is not paid 

by the dealer, either because no check comes or because a check comes back dishonored. For 

producers who sell through a sale barn, a Dealer Trust would help ensure that sale barn stays in 

business, which is vital to farmers and rural communities. A dealer trust would not require 

significant changes to our businesses today. People would continue to raise cattle and sell cattle 

just as they do today. They would continue to want to be paid timely for livestock. The only change 

would be priority in default. With a dealer trust, no separate bank account or other changes are 

needed. It is unlikely there would be a significant change in a dealers financing because the change 

in their lenders status only occurs if their customer does not pay for livestock and, if this happens, 

only affects assets not paid for. A dealer trust would improve recovery in dealer defaults without 

making significant changes to industry structure or requirements." 

Trade organizations also commented on the issue ofcredit availability. "By allowing sellers 

of livestock to be the priority recipient of livestock and proceeds/in a dealer default situation, 

lenders across the nation could benefit by extension as well. In the state of Arkansas, lenders have 

more producer/seller customers than dealer customers. Therefore, lenders should have more 

confidence in making credit available to producers while also having confidence that they would 

still obtain first priority in non-trust assets such as land, equipment, vehicles, etc." 

Another organization did not believe a livestock dealer statutory trust would have a 

significant impact on credit availability for livestock dealers. "In most instances, lenders who 

extend credit to dealers should not rely heavily on potential trust assets as collateral to secure loans. 

Furthermore, the only time a dealer trust should impact lender/dealer relationships is the unlikely 

event of a default. Unlike a dealer bond, a dealer trust would not necessitate additional capital 

outlays. If a lender were to require additional capitalization or additional credit, it is likely the 

137 
dealer was insufficiently capitalized in the first place. To that end, a dealer trust would work to 

ensure that lenders and dealers alike are conducting their due diligence to ensure each can operate 

sustainably and operate as responsible participants in the livestock industry. Finally, it is worth 

noting that a lender is in the position to require a dealer to pledge assets for collateral other than 

inventory and accounts receivable, whereas a livestock seller is not in a position to make such 

demands due to the nature of their relationship with a dealer." 

A commenter who identified himself as a practicing attorney in Oklahoma representing 

livestock producers, commission companies, auctions, dealers, and feeding operations wrote in 

support of the dealer statutory trust. He said, "Many of my clients were impacted by the Eastern 

Livestock bankruptcy. Producers and livestock markets that sold cattle to Eastern Livestock just 

prior to the bankruptcy received little to nothing in the bankruptcy while Eastern's bank received 

the proceeds from Eastern' s sale of the same cattle. This was the inequitable result of UCC and 

Food Security Act rules that were not consistent with the practical standards of the industry. As a 

result we assisted some of our clients in drafting and introducing the Oklahoma Livestock Owners 

Lien Act. 154 The [Oklahoma] Act is very similar to the proposed Dealers Trust. It creates a statutory 

lien in favor of a seller of livestock which exists until the seller actually receives payment. If the 

buyer resells the Livestock to a good faith purchaser the lien jumps from the livestock to the 

proceeds of the sale. The act benefits both Oklahoma sellers and livestock markets who act as an 

agent for the seller. This state law was vetted by Oklahoma' s livestock groups, feeder interests, 

and banking interests. After the Act became law, it has been used on multiple occasions to protect 

sellers oflivestock who for a variety ofreasons were put into a situation where they sold livestock 

but were not paid. The Act has not had a negative impact on Oklahoma's Livestock Industry. It 

154 4 Okla.§§ 201.1- 201.11. 

138 
has been a success in practice. The proposed Dealers Trust will likewise have a positive impact on 

the US livestock industry." 

"Lenders are a valued partner of the livestock industry for producers, dealers, markets, 

feeders, and packers alike. Giving sellers of 1-ivestock-and by extension their lenders-priority 

in unpaid-for livestock and proceeds/receivables, would correct an imbalance in the current law 

while not significantly reducing credit availability for livestock dealers." One organization noted 

discussions it had with rural lenders who pointed out that the "vast majority of lenders in the 

livestock industry have more producer customers than dealer customers. These lenders confirmed 

for their dealer customers a Dealer Statutory Trust would not change their lending relationships." 

This commenter also noted it is important to remember that "lenders would retain their first priority 

in non-trust assets such as land, vehicles, and equipment." This commenter also referenced the 

state lien laws such as Oklahoma's and Florida's. "In neither of these states has there been reports 

of livestock buyer financing being negatively impacted." The commenter pointed out that even 

though the state livestock lien laws have been helpful in default situations, they do not protect 

against preferential transfer claims in the event of a dealer bankruptcy; and questions exist as to 

the efficacy of the laws for transactions where parties and livestock are located in multiple states. 

Opponents to the dealer statutory trust also spoke out on this issue. In particular, on banking 

association raised concerns over "the unintended consequences it would have on credit availability 

for our members' agriculture customers in Texas and the rural communities supported by this type 

of credit. Specifically, a livestock dealer's trust could displace banks from priority lien status, thus 

granting primary lien status to a party that did not take the initial risk involved in making the loan. 

This is not only unfair, it could potentially be a disincentive for banks to make this type of loan 

and lead to less credit availability in rural areas in Texas and throughout the country. If a banker 

139 
knows that its priority lien on a farm product could be jeopardized through no fault of the bank or 

its customer, there will be fewer banks willing to make these types of loans and it will ultimately 

hurt those customers the dealer' s trust is purported to help." 

Another commenter wrote, "Lenders are a Gritical factor in the livestock industry as in all 

of agriculture. However, agriculture is not a critical industry for the financial industry as a whole. 

Therefore, while the large banking and lending organizations may be silent on this issue, the 

independent and community bankers in Texas have clearly stated their opposition to creation of a 

livestock dealer statutory trust as placing a seller who may use poor judgement or risky business 

practices ahead of the lending institution." 

A banking association wrote, "Our first concern is that any such trust should not receive a 

priority lien on livestock dealer accounts receivable or other funds. Credit facilities to livestock 

marketers depend on the cash flow from the receivables. An impairment ofthat collateral through 

the resulting inferior treatment of the contractual lien would create a significant impediment to this 

credit line. The end result would be reduced credit availability. Further, lenders would likely 

require a secondary source of repayment, which could actually evolve into the primary source. In 

addition, lenders would expect higher liquidity, reducing the margins for some of these livestock 

marketers. Credit would become more expensive - due to the enhancements that a prudent lender 

would insist upon as well as through higher interest rates to accommodate the higher risk. At least 

one significant, large agricultural bank has assured us that it would consider these loans to be 

"undesirable." We would respectfully suggest that alternatives to a trust fund should be explored, 

such as the use of Livestock Market Payment Insurance, which we understand is available in the 

marketplace. This option would reduce the payment risk but do so in a more cost effective - and 

less market disruptive - manner. We concur that electronic verification of payments and more 

140 
expeditious electronic processing is another tool in assuring the soundness of the payment system. 

Efforts to achieve this are in process. In fact, we are encouraging the Federal Reserve System to 

develop timely payment systems that would be widely available to all banks." 

h. Electronic Funds Transfer for Livestock Purchases 

PSD asked commenters to address whether "industry-wide adoption of electronic funds 

transfer or another expeditious method ofpayment feasible, and would such adoption provide 

sellers of livestock with protection from nonsufficient funds payments? " Only 61 of the 1597 

comments received specifically discussed this topic. Several cornrnenters mentioned that this issue 

was unrelated to considering the feasibility of a livestock dealer statutory trust, which may explain 

the low response rate on this question. The 61 comments came from a variety of cornrnenters, 

including auction markets (25), dealers (14), trade associations (11), and one who identified as a 

producer. 

Commenters on this topic were generally well informed regarding the prompt payment 

provisions of the P&S Act. On commenter, an attorney from Florida, wrote, " [a]s proposed, the 

dealer trust would not change prompt payment requirements of the Act. Currently, dealers, 

livestock markets, and packers must pay for livestock before the close of the next business day. 

The prompt payment requirement is one of the critical components of the Act and remains 

unaffected by the dealer trust " 

Other commenters agreed that the creation of a dealer statutory trust would not change 

current P&S Act prompt payment requirements and were opposed to limiting payment options. At 

the same time, comm enters noted that regardless ofthe payment method, the risk ofa dealer default 

remains. Several industry trade associations expressed that while an electronic fund transfer could 

speed up transactions, there remains the possibility of payments being returned for insufficient 

141 
funds. One auction operator said, "[w]hen sellers are not paid, it is generally because the funds do 

not exist. The payment method is irrelevant." 

Commenters also expressed concern that changing the method of payment from a check in 

the mail to electronic transfer would significantly change the way the livestock industry functions. 

Many ofthe commenters also expressed concern that this shift would put small- and medium-sized 

dealers out of business or would significantly reduce their buying power. One livestock auction 

operator estimated that 25% of the buyers attending his sale would not be able to participate if 

purchase funds were required to be wired the same day as the sale. 

One trade group representing small- and midsized-banks commented that the problem with dealer 

defaults could largely be addressed by an expeditious EFT system. The group believes industrywide adoption of EFT would solve the nonsufficient funds problem without causing market 

disruption. Under this commenter's suggestion, producers and auction barns would be instructed 

or even required to obtain a bank-to-bank wire transfer before releasing their cattle for shipment. 

Payments would be more certain because banks only wire money out if the sender has the funds 

available. Once the money arrives, it is typically available within one business day. 

142 
1. Section 12103, 2018 Farm Bill 

H.R. 2-453 

'"'{2}_EPIIECT.- o hing in parag:rap~ 1 shaU ~ construed 

to termmat a contract, gran , cooperative ag:r,ooment, or other 

legal instrument, entered into duri:a · the period specified ia 

such paragraph."... 

SEC. 12102, SHEEP PROD CIION AND .MARKFI"ING G:RAN1' PROGRAM. 

Section 209(c) of he A:micu.ltural )larketin Ac of 1946 7 

U.S.C. 162 a(c ) is arnended'l>y striking "$1500 000 for fiscal year 

2014" and inserting "'$2,000,000 for f1SCa1 ear 2019·... 

SRC. 12:103. FE..\SIBfLITY SI'1.IDY ON l...nllSJ'OOI[ DEALRR STATUTORY 

TH ST. 

(a ) IN GEmm.AL.-The Socretar ;sha11 conduct a study to deter­ mine he feasibility of establishing a live.stock dealer statutory 

trust. 

tb) CONTE TS.-Tbe tudy conducted under s.ubsadion a) 

s.ha11- I analy7.e how the establislnrumt of a Ji •es.tock dealer 

statutory trust would a.ffect buyer and seller behavior in mar­ kets for Hve ock (as defined in section 2(a) of the Packers 

and Stockyards Act 1921 (7 .8.. • 182) ; . (2 eiamin how t he e.stahlishm nt of a livestock dealer 

statutory trust wottld affect seUer reco •ery i.n the event of 

·a il\'estock dealer payment defauJ_t· (3) consider wllat potential effects a lh" tock dealer statu­ tonr trust would have on credit availabili~ includm impac 

on ·lenders and leading beh.a-..i o_r and -otlier ind.ustry participants; . (4 examine unique circmnstanoos common to livestock 

dealers and how those drcumst anoos could impact . t.be 

functiona1ity ofa livestock dealer statutory trnst; 

5 study the fo.a.sibility of th ind~-wid adoption of 

electronic funds ~ansfBl' or another expedi ious methocf of pay­ ment to pro"¥id sellers of liv tock proM!ciion from nonsuffi.cien 

funds paymen~ . (6) assess the . effecttvene.ss of statutory tru.sts in other 

5e:gments ofagriculture\ ·hether 1 imil.ar effects could be eX¥.!'ri-. enc.ad Wlder a livestocK dealer statutory trust, and_ whether 

authorizing he &!cretary to appoin . an independent trust.ee 

under tbe livestock dealer statntory trust woufd improve s.elleT ·.rocove-:ry; 

(7 oonsider he effects of exempting dealers with average 

annual plll'cliase.s under a cfo mimmi.s threshold from being 

sU:bjecl t.o the liv0stock dealer statutory trus ; and . (8) analyze how the stahlishment of a livestock dooler 

statu O!Y t:ra8t would affect tb treatmE!nt of se[ ers ofJives.tock 

as it relate ·~ prefemntial transfer in bankruP-k.f- c) REPORT.-Not later thaa l year after the i.ia:fo of enactment 

of hi Act the Secretary shaU submit. t.o the Comnut'te! -on Agri­ culture of the Hou of Representatives and the ommiltoo on 

~culture, . utritfon, and Fore~ of the Senate a report deBCJ'.ibing the fmdiogs of the stnd , conducted under s ubsection 

(a}. 

SEC. umi. Dl!FIND'ION OF I.JVESJ'OCIL 

Section 602(2) of the Emergency Hvest.ock Feed Assuitance 

Act qf 19 8 (7 μ.s.c. 14~1_2}) is ame.nde:d in the matter precedin_g 

rubpa::ragraph A) b r triking "fish"' and a11 that follo 'S through 

143 
j. House Bill 4058; SALE Act of 2017 

H1R 058, 

BIIL 

J 

,. 

144 
~ 

EBI.'.ADLl!iHllln,n' OF m e. 11.'ll!YR':S'IIT' 

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:3 

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23 

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26 j:s DJ.'CC!'~f bo e 

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145 
3 

I H(t!) l�YA'l"ION OP TR.t'\9.T.-An unpaid l'.Mb. 

2 llclier .hall SNI! Ute bmel'd ol a ln:urt 1111des- sllme<!t.iocn (a} 

3 a t.h!!-unpaid � seller ... not. �� the tnuit. h}' 

4 giriog Mil� noUtt to t.be dlllllE' iowJh'l!l,I and filinB' atrh 

5 auti� wi&h the� 

6 1

�( I) wiih.ia 30 da.)'11 ar the, final dale for mak7 ing a pa.,vml!ld unclH- R«."iiot1 409 in lhe 4!¥eaf. Llmi 

8) II. payment. � bu nol been receft'M; OT)

9 11(2) •it.bin 15 bnainesi, days all.er lhe date- on)

lO � LIie Miler � no� lhai.t the paymait inI]) sk11mr.at. prumpUy �� for paymcaL bas been)

l2 dillhuaon!d.)

13 u(d) .NOTIC".Jr TO �s HotiDER&-WJien a 1leal.er re1.t er.i.ws aoaw sander alUllil.!Cl.iDll (�) with fi5dlJJi:d to a ...... � 

15 &he-dealer alial� within 15, bu.siacm da),,., p nolliee w 

16 all pr.nons who haW? � a aecuril.y intenst in, or 

17 tiea aa, the lhei&ack held in m,nh t.u.t.. 

UI H(I!-) CAaa 8A.LEs llsacanurm.-Par Ue flU11JOl&e or 

19 U.is m,cllion1 11 eaab � mea.m a. ale in � the aellcr 

20 does OOL e,;prmdy enead en,dit la &he �1'-'" ,· 

0 

146 
k. Senate Bill 3140; SALE Act of 2018 

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148 
:s 

I wbim the- wrntet1 Jlflll!Cmet1i •pplim takes 

2 � 

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.t �4. mernd to m su.hpanpapa. (A) 

5 •baU i.ndiMte whdher � wrilteti i118ff.t!111ellt1

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IO ,aei� t.ennmaies ilu� 1181ft1111!11l in writ.inf(. 

II u:(C) 1£l'P.RCT ON PA 'rlllCYr ftBIIIL-A 

12 waiftr wMLer subparagraph (A I ahti.11 not aired 

13 &hi!- pa.yml!ll& !emu of illll! ale. 

14 u(,) IC� OP DlBUOHOU� JNBTKU13 JIIZHTR;-. 1'« pal"pOIM'S or d� rail fNIY'llelll 

16 uDi;lt?i:-paragraph (1), 11 JNl.}"ffll!at. kt an ,mp,ri:d HUil 

17 aeller dwl � be eo1111idernd io hue beer. macJe if 

18 the unpaid euh acller reeeil.'ell a pa..JUlelll imt.rume111 

19 ihal ia �aomd. 

20 �e) ��NT.·-lf !l dmler" I.am &o perfann &he 

21 mdim reqoifflt by 11111-cl.iata fb},.Ute Setft.._l}" will take 

22 lllln action u • � 

23 u(t) to eaf.orne the t.r1ul-, itletuding by appoin&· 

24 ing aa indef!ellll)mt �. and 

25 uc,) to � Ute- aaet.a of the tnut.. 

•tHaB

149 
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152 
I. 2000 Statutory Trust Legislation 

17 SEC. 5. STATUTORY TRUST FOR THE PROTECTION OF SELL18 ERS OF LIVESTOCK TO MARKET AGENCIES 

19 AND LIVESTOCK DEALERS. 

20 Title ill of the Packers and Stockyards Act, 1921 

21 (7 ..C. 201 et seq.) is amended by adding at the end 

22 the foU owing: 

23 "SEC. 318. LIVESTOCK DEALER TRUST. 

24 ' (a) FrN DINO ·.- ongress finds that-

•S 2744 IS 

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158 
m. 1996 Statutory Trust Legislation 

270 

1 Subt"tle D- el anoou 

2 l!C. 641 . 1\'ES"FOCK DEAL 

3 the P.~ li:ers and '-' J9'2 1 

5 the win,c: 

6 EC. 1 l.l\'PSTOCK DE'.AI..ER THU T. 

7 Eiads, t:halR '{l a bu:rdeμ ,,., BJld obsl:m ·or• toe mme: 

9 Llv&:wc~ · firumcit &rran~il!mB 

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12 ri~ . fo 

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4 

15 . fur thi! Li\'i!.-

16i 

17 ("l th ~'ID out of 

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msu r • 

159 
271 

1 !( 1 H li.-'l "i:-..aab alr. mans 

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160 
272 

l 'W! deal.el" or mark in r th 

3 

4 I} 

5 1= by a ,1l!:BJI!,r 

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2 

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0 

1 l"!iin.51,':i11MY!d to lbe- made · 

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iraa saL 

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6 lba11 of n.der oaraweμ 

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fl 15 bll8iJW!58 cta~~ 

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1 

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5 mark~t llln:!Ilc-\1 f Lera inter!'· 

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73 

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6 pllf-t."fUISi! tock. WUIJOU[ Lo whi!lht!-..r 

6rie PIH'-

8 

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0 oo 

H '4] ) by th!!- herreficfary of a · d~b?.d in 

12 .yment ar the amoan 

)3 hc>Jrl mu l:rnst.; and 

rn-1 hy the- SecTetsry, to tJr1!'.-,mt end fil!8fraja 

s rfia&ipation t•f a tru&t ,r1 

6 t!}( lJ ."-

162