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How much beef is actually in a fast food taco might cause cattle producers to feel a twinge in their gut. But a massive check-floating scheme that toppled one of the industry’s largest cattle brokerages this fall hit many of them squarely in their pocketbooks, leaving victims sick to their stomachs.
Among the thousands attending the National Cattlemen’s Beef Association annual convention last week, whether Taco Bell is scamming customers by selling beef tacos with a filling that only contains 35 percent beef, as a recent lawsuit contends, was a minor issue on which many were willing to take a wait-and-see stance. By contrast, the implosion of Eastern Livestock, which landed in bankruptcy court after piling up $130 million in bad checks and unpaid debt, inspired plenty of outrage.
“This is Bernie Madoff stuff,” said Steve Foglesong, of Astoria, Ill., the immediate past president of the association, comparing the situation to a natural disaster.
The Taco Bell allegations captured the interest of Samantha Murnin, who graduated last year from Colorado State University after studying meat science. She is now the executive director of the Fort Collins-based Braunvieh Association of America and was working at the association’s booth in the sprawling trade show. CSU has a Taco Bell on campus.
“The consumer doesn’t necessarily understand what it means,” she said of the lawsuit. “It doesn’t mean there are chunks of another meat in there. That would be my concern. We don’t need people to think that. The consumer is already questioning beef in general, more than in the past.”
Bill Donald, the new NCBA president, said he didn’t know a lot of specifics about the Taco Bell case, although he was concerned about the potential of having an inferior product misrepresented as beef.
“If it doesn’t taste like beef, that’s not good for beef’s image,” said the rancher from Melville, Mont. “We need to ensure that every experience somebody has eating beef, it’s a good one. That said, I’m not sure more regulation is the answer.”
He theorized that one potential approach to the situation would be for the Beef Checkoff to team up with Taco Bell to promote a 100 percent beef product.
In fact, the Beef Checkoff has partnered with Taco Bell on promotional campaigns in the past. Back in 2002, checkoff funds helped advertise the steak quesadilla. In 2001, checkoff promotion of a grilled steak taco helped the fast food chain double its sales.
By contrast, he didn’t have any quick ideas for setting things right when it came to the sudden collapse of Eastern Livestock, which he called “a much bigger deal” likely involving criminal behavior.
Mike Schmidt, who traveled to the convention from Bonnie View Farm in Dell Rapids, S. D., questioned the big gap between the 88 percent beef Taco Bell claims and the 35 percent alleged in the lawsuit. But he said Eastern’s downfall created a massive legal tangle, with some yards stuck feeding cattle with no clear title of ownership as just one example of the complications surrounding the case.
“Where were the banks and the bank regulators on this? Who missed the boat here?” he said. “Somebody should have been watching a lot closer.”
Panel assembled
That view was widely shared. NCBA’s live cattle marketing committee corralled a panel of experts to address who was asleep at the wheel as Eastern Livestock unraveled. Owner Tommy Gibson allegedly created up to $2.5 billion in false transactions to float his business before it collapsed, leading to a Forbes headline calling it “the Lehman of livestock.”
But the harshest criticism was reserved for Fifth Third Bank, which in seeking to cover its own debt will likely leave small producers, truckers and livestock auctions holding the bag.
“What the Gibsons did was totally a fraud, but the bank was as wrong if not more. I hope every little guy gets his money from that bank, because they were as wrong as Eastern,” Superior Livestock Auction co-founder and general manager Jim Odle said with emotion and to applause. He called on NCBA to see that the bank is held accountable.
Meanwhile, several panelists said payment methods needed to change. Steve Owens, owner of the Joplin Livestock Market, who weighed in by phone, said the time lag in sending checks by mail intensified the damage. If sale day was Monday and payment was received Tuesday, he would have known by Wednesday that Eastern was in trouble, well before the next Monday sale. Wiring payments speeds up the process, but panelists said resistance to its use stems from the $50 cost.
John Queen, a former NCBA president and co-owner of Southeast Livestock Exchange of Waynesville, N.C., who along with Superior racked up big losses in the debacle, accused the bank of waiting until the most opportune time to freeze the assets, based on what they could recover and not on how it would affect others caught up in the scandal. He said since Eastern tripled its business volume between 2009 and 2010, the bank should have been watching it closer.
Another issue debated was Eastern’s bond, which turned out woefully inadequate.
At $875,000, it was equivalent to 12 percent of one day’s purchase of cattle, not the one to two days of business generally considered standard.
Queen said he had asked congressional leaders to demand a review of the bonding formula and said the audit trail at the federal oversight agency, the Grain Inspection, Packers and Stockyards Administration, was inadequate. “If P&S isn’t competent enough to carry out an audit of these larger operations, we should require them to hire an independent auditing company,” he said.
At the same time, panelists advised caution in taking steps that would add regulations, government intrusion or costs to the business.
“We don’t want to bond out the little mom and pop trader, the little mom and pop auction. We need those in our communities,” Odle said. He preferred the idea of setting up a shippers’ custodial account to help manage delays between purchase and delivery.
Allie Devine, vice president and legal counsel for the Kansas Livestock Association, wanted to see better means for identifying fraud. With the company recreating fraudulent invoices and feed tickets, the financial problems would have been difficult to spot by a federal audit, she said. “How much government do you want?” she asked cattlemen.
Instead, she said everyone needed to put financial transactions in writing. “There’s nothing wrong with paper,” she emphasized. “You have to do it.”
Another panelist reminded cattlemen of the inherent risk in today’s business.
“Someone can be solvent today and broke tomorrow with how volatile the market is,” said Van Dewey, a managing director for Rabo Agri-Finance. “The old adage ‘buyer beware’ is now ‘seller beware.’ Cash is king: make sure that check is good.”
Historically, on average, 13 livestock dealers go out of business every year, and damages are typically recovered at a rate of 18 cents on the dollar, according to Gary Coady, vice president of agribusiness for the Cline Wood Agency.
At conclusion of business Saturday, the NCBA board of directors instructed its staff to work aggressively with Congress and federal agencies to make relief available to those affected and to ask for a congressional hearing into federal auditing and bonding procedures.
For the latest on the Eastern bankruptcy, detailed information is available on the trustee’s blog at www.easternlivestockbkinfo.com.
How much beef is actually in a fast food taco might cause cattle producers to feel a twinge in their gut. But a massive check-floating scheme that toppled one of the industry’s largest cattle brokerages this fall hit many of them squarely in their pocketbooks, leaving victims sick to their stomachs.
Among the thousands attending the National Cattlemen’s Beef Association annual convention last week, whether Taco Bell is scamming customers by selling beef tacos with a filling that only contains 35 percent beef, as a recent lawsuit contends, was a minor issue on which many were willing to take a wait-and-see stance. By contrast, the implosion of Eastern Livestock, which landed in bankruptcy court after piling up $130 million in bad checks and unpaid debt, inspired plenty of outrage.
“This is Bernie Madoff stuff,” said Steve Foglesong, of Astoria, Ill., the immediate past president of the association, comparing the situation to a natural disaster.
The Taco Bell allegations captured the interest of Samantha Murnin, who graduated last year from Colorado State University after studying meat science. She is now the executive director of the Fort Collins-based Braunvieh Association of America and was working at the association’s booth in the sprawling trade show. CSU has a Taco Bell on campus.
“The consumer doesn’t necessarily understand what it means,” she said of the lawsuit. “It doesn’t mean there are chunks of another meat in there. That would be my concern. We don’t need people to think that. The consumer is already questioning beef in general, more than in the past.”
Bill Donald, the new NCBA president, said he didn’t know a lot of specifics about the Taco Bell case, although he was concerned about the potential of having an inferior product misrepresented as beef.
“If it doesn’t taste like beef, that’s not good for beef’s image,” said the rancher from Melville, Mont. “We need to ensure that every experience somebody has eating beef, it’s a good one. That said, I’m not sure more regulation is the answer.”
He theorized that one potential approach to the situation would be for the Beef Checkoff to team up with Taco Bell to promote a 100 percent beef product.
In fact, the Beef Checkoff has partnered with Taco Bell on promotional campaigns in the past. Back in 2002, checkoff funds helped advertise the steak quesadilla. In 2001, checkoff promotion of a grilled steak taco helped the fast food chain double its sales.
By contrast, he didn’t have any quick ideas for setting things right when it came to the sudden collapse of Eastern Livestock, which he called “a much bigger deal” likely involving criminal behavior.
Mike Schmidt, who traveled to the convention from Bonnie View Farm in Dell Rapids, S. D., questioned the big gap between the 88 percent beef Taco Bell claims and the 35 percent alleged in the lawsuit. But he said Eastern’s downfall created a massive legal tangle, with some yards stuck feeding cattle with no clear title of ownership as just one example of the complications surrounding the case.
“Where were the banks and the bank regulators on this? Who missed the boat here?” he said. “Somebody should have been watching a lot closer.”
Panel assembled
That view was widely shared. NCBA’s live cattle marketing committee corralled a panel of experts to address who was asleep at the wheel as Eastern Livestock unraveled. Owner Tommy Gibson allegedly created up to $2.5 billion in false transactions to float his business before it collapsed, leading to a Forbes headline calling it “the Lehman of livestock.”
But the harshest criticism was reserved for Fifth Third Bank, which in seeking to cover its own debt will likely leave small producers, truckers and livestock auctions holding the bag.
“What the Gibsons did was totally a fraud, but the bank was as wrong if not more. I hope every little guy gets his money from that bank, because they were as wrong as Eastern,” Superior Livestock Auction co-founder and general manager Jim Odle said with emotion and to applause. He called on NCBA to see that the bank is held accountable.
Meanwhile, several panelists said payment methods needed to change. Steve Owens, owner of the Joplin Livestock Market, who weighed in by phone, said the time lag in sending checks by mail intensified the damage. If sale day was Monday and payment was received Tuesday, he would have known by Wednesday that Eastern was in trouble, well before the next Monday sale. Wiring payments speeds up the process, but panelists said resistance to its use stems from the $50 cost.
John Queen, a former NCBA president and co-owner of Southeast Livestock Exchange of Waynesville, N.C., who along with Superior racked up big losses in the debacle, accused the bank of waiting until the most opportune time to freeze the assets, based on what they could recover and not on how it would affect others caught up in the scandal. He said since Eastern tripled its business volume between 2009 and 2010, the bank should have been watching it closer.
Another issue debated was Eastern’s bond, which turned out woefully inadequate.
At $875,000, it was equivalent to 12 percent of one day’s purchase of cattle, not the one to two days of business generally considered standard.
Queen said he had asked congressional leaders to demand a review of the bonding formula and said the audit trail at the federal oversight agency, the Grain Inspection, Packers and Stockyards Administration, was inadequate. “If P&S isn’t competent enough to carry out an audit of these larger operations, we should require them to hire an independent auditing company,” he said.
At the same time, panelists advised caution in taking steps that would add regulations, government intrusion or costs to the business.
“We don’t want to bond out the little mom and pop trader, the little mom and pop auction. We need those in our communities,” Odle said. He preferred the idea of setting up a shippers’ custodial account to help manage delays between purchase and delivery.
Allie Devine, vice president and legal counsel for the Kansas Livestock Association, wanted to see better means for identifying fraud. With the company recreating fraudulent invoices and feed tickets, the financial problems would have been difficult to spot by a federal audit, she said. “How much government do you want?” she asked cattlemen.
Instead, she said everyone needed to put financial transactions in writing. “There’s nothing wrong with paper,” she emphasized. “You have to do it.”
Another panelist reminded cattlemen of the inherent risk in today’s business.
“Someone can be solvent today and broke tomorrow with how volatile the market is,” said Van Dewey, a managing director for Rabo Agri-Finance. “The old adage ‘buyer beware’ is now ‘seller beware.’ Cash is king: make sure that check is good.”
Historically, on average, 13 livestock dealers go out of business every year, and damages are typically recovered at a rate of 18 cents on the dollar, according to Gary Coady, vice president of agribusiness for the Cline Wood Agency.
At conclusion of business Saturday, the NCBA board of directors instructed its staff to work aggressively with Congress and federal agencies to make relief available to those affected and to ask for a congressional hearing into federal auditing and bonding procedures.
For the latest on the Eastern bankruptcy, detailed information is available on the trustee’s blog at www.easternlivestockbkinfo.com.
