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The federal Packers and Stockyards Act, written into law in 1921, promotes fair and competitive marketing of livestock, meat and poultry.

Its rules prohibit auctioneers working the auction from bidding on consigned livestock.

Here’s the text of that law:

    Title 9 – Animals and Animal Products. CHAPTER II – GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION (PACKERS AND STOCKYARDS PROGRAMS),DEPARTMENT OF AGRICULTURE. PART 201 – REGULATIONS UNDER THE PACKERS AND STOCKYARDS ACT. – Trade Practices.

    § 201.56

    Market agencies selling on commission; purchases from consignment.

      (a) Livestock to be sold openly at highest available bid. Every market agency engaged in the business of selling livestock on a commission or agency basis shall sell the livestock consigned to it openly, at the highest available bid, and in such a manner as to best promote the interest of each consignor.

      (b) Purchases from consignment. No market agency engaged in the business of selling livestock on a commission basis shall purchase livestock from consignments, and no such market agency shall permit its owners, officers, agents, employees or any firm in which such market agency or its owners, officers, agents, or employees have an ownership or financial interest to purchase livestock consigned to such market agency, without first offering the livestock for sale in an open and competitive manner to other available buyers, and then only at a price higher than the highest available bid on such livestock.

      (c) Key employees not to purchase livestock out of consignments. No market agency engaged in selling livestock on commission shall permit its auctioneers, weighmasters, or salesmen to purchase livestock out of consignment for any purpose for their own account, either directly or indirectly.

      (d) Purchase from consignments; disclosure required. When a market agency purchases consigned livestock or sells consigned livestock to any owner, officer, agent, employee, or any business in which such market agency, owner, officer, agent, or employee has an ownership or financial interest, the market agency shall disclose on the account of sale the name of the buyer and the nature of the relationship existing between the market agency and the buyer.

    (Approved by the Office of Management and Budget under control number 0590-0001.)(7 U.S.C. 228, 7 U.S.C. 222, and 15 U.S.C. 46) [49 FR 6084, Feb. 17, 1984, as amended at 49 FR 13003, Apr. 2, 1984; 58 FR 52886, Oct. 13, 1993]

A sample violation:

In 2009, the U.S. Department of Agriculture fined a Billings livestock auction $31,000 for allowing an auctioneer to buy more than $1 million worth of cattle and for accounting practices that fell short of “strict conformity” to federal rules.

You can read more about this violation here:
http://billingsgazette.com/news/local/article_d44a385a-d8b8-11de-b6cd-001cc4c03286.html#ixzz1pKksECTD

Let’s look at each of these (a), (b), (c) and (d) laws of Title 9 Section 201.56:

    (a) is written perfectly — all is sold openly, to the highest bidder, in the best interest of the seller.
    (b) is written perfectly — those working for the market agency can bid at the auction, so long as their bids are commensurate with open bidding to others, and the livestock sells to the highest bidder.

    (c) is troublesome. Auctioneers, weighmasters, nor salesmen are not permitted to bid either directly nor indirectly on any of the livestock in the auction. We’ll discuss this further below.
    (d) is written perfectly — if those employees or the like of the market agency purchase livestock in the auction, the records kept by the market agency must disclose the name of the buyer and the nature of the relationship that buyer has with the market agency.

The troublesome Title 9 Section 201.56 (c) prohibits the auctioneers, weighmasters and salesmen from bidding. Why would this be? As we wrote back in 2009, we think the auctioneer (or anyone else, except the seller) should have the right to bid given:

  1. The seller has knowledge and consent
  2. The auctioneer wishes to bid
  3. The buyers are informed of this right to bid
  4. The governing law does not prohibit it

Of course, federal law does prohibit this bidding …

It seems if auctioneers are to follow Title 9 Section 201.56 (a) and have the seller’s best interest in mind — and if the auctioneer is willing to pay more than any of the other bidders, then by not bidding, this actually harms the seller’s position, and violates Title 9 Section 201.56 (a) by adhering to Title 9 Section 201.56 (c).

My guess is that laws such as this exist because auctioneers (and weighmasters and salesmen) were bidding and buying without the seller’s best interest in mind, and thus in 1921 this law was designed to rectify a “dual agency” conflict of interest — where an auctioneer might bid and then maybe not adequately look for other bids in order to sell the livestock to himself?

Are such laws prohibiting auctioneers, weighmasters and salesmen from bidding needed today? They are not — and rather — such laws do more to damage the seller’s position than they do to protect it.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, <Keller Williams Greater Columbus Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.