Livestock Market Agencies Dealers & Packers (Clause 2 - Buys on commission or as a dealer) Bond - USDA in All States
Table of Contents
Brief Summary
A livestock dealer or order buyer cannot legally buy in commerce until the Packers and Stockyards Division has a Clause 2 bond on file sized to roughly two days of purchases. A surety bond covers that amount for an annual premium so purchasing cash stays in the business, and the executed PSD 2000 form goes to the regional office with the registration application.
Every livestock dealer and every market agency buying on commission must file and keep a Clause 2 bond with USDA's Packers and Stockyards Division under 9 CFR 201.29. The amount is based on the average value of livestock bought in two business days under 9 CFR 201.30(b), with a $10,000 minimum and a higher figure if state law requires it. The bond guarantees that sellers are paid the purchase price when due.
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How to Apply for a Livestock Market Agencies Dealers & Packers (Clause 2 - Buys on commission or as a dealer) Bond:
- Register with the Packers and Stockyards Division on form PSD 1000 before buying livestock in commerce.
- Total last year's livestock purchases and divide by half your business days, capped at 130, or ask your PSD regional office for your figure.
- Check whether your state sets a higher minimum than the federal $10,000.
- Have the surety complete form PSD 2000 with Clause 2 selected, then sign as principal.
- File the executed bond with the PSD regional office for your headquarters state.
- Wait for written notice that registration is effective before buying.
Detailed Information About the All States Livestock Market Agencies Dealers & Packers (Clause 2 - Buys on commission or as a dealer) Bond:
Who posts a Clause 2 bond
A dealer buys and sells livestock on its own account or as the agent of the buyer or seller. A market agency buying on commission buys livestock for others for a fee. Both must register with the Packers and Stockyards Division and file a Clause 2 bond. If one firm does both, a single bond covers both buying activities.
Two groups do not file their own Clause 2 bond. A dealer or buyer whose purchases are cleared by a registered clearing agency is named as a clearee on that agency's bond instead, under 9 CFR 201.29(c). Packer buyers registered as dealers to buy livestock for slaughter only are also excepted under 9 CFR 201.29(a), because the packer's own bond covers them.
A business that also sells livestock on commission needs a separate Clause 1 bond for that side. One bond cannot cover both selling and buying.
How the amount is calculated
The amount is not a flat figure. Under 9 CFR 201.30(b), take the total dollar value of livestock purchased during the preceding business year and divide it by half the number of days you did business. The business year counts no more than 260 days, so the divisor never exceeds 130. Round up to the next multiple of $5,000. If the result is over $75,000, the bond need not exceed $75,000 plus 10 percent of the amount above $75,000, rounded up to the next $5,000.
The minimum is $10,000, or more where state law requires it. A new registrant who has handled livestock before uses that history if it reflects future operations, and a successor must carry at least the prior registrant's bond unless the Administrator decides otherwise. The Administrator can order an increase whenever the bond looks inadequate.
What the bond guarantees
Condition Clause No. 2 in 9 CFR 201.31(b) promises that you will pay the purchase price of all livestock you buy, when due, and that you will safely keep and properly disburse any money given to you to pay for livestock bought for others. Payment is due before the close of the next business day after purchase and transfer of possession. Unpaid sellers can sue on the bond even if they are not named in it, but a written claim must be filed within 60 days of the transaction, and suit must be brought between 120 and 547 days after it.
Filing
The surety completes form PSD 2000 with Clause 2 selected and the principal signs it. It is filed with the PSD regional office covering the state where the business is headquartered, along with the PSD 1000 Application for Registration. Names must match exactly. Do not start buying until PSD gives written notice that the registration is effective. The surety must be on the Treasury list of companies approved for bonds to the United States, and 30 days written notice to AMS is required before cancellation.
Cost
The surety sets an annual premium as a percentage of the bond amount after reviewing credit and finances, and may ask for collateral. A trust fund agreement or a letter of credit pledged to a trust agreement can replace all or part of the surety bond.
Eligibility and Requirements for an All States Livestock Market Agencies Dealers & Packers (Clause 2 - Buys on commission or as a dealer) Bond:
- Surety company currently approved by the U.S. Treasury for bonds executed to the United States.
- Bond amount computed under 9 CFR 201.30(b), never less than $10,000.
- Principal name on the bond matching the PSD registration exactly.
- Separate Clause 1 bond if the firm also sells livestock on commission.
- At least 30 days written notice to AMS before the bond is terminated.
- Credit and financial review by the surety. Collateral may be requested.
All States Livestock Market Agencies Dealers & Packers (Clause 2 - Buys on commission or as a dealer) Bond FAQs:
Divide last year's total livestock purchases by half the number of days you did business, with that divisor capped at 130, then round up to the next $5,000. Above $75,000 the bond need not exceed $75,000 plus 10 percent of the excess. The minimum is $10,000.
No. If a registered clearing agency clears your buying, you are named as a clearee on that agency's Clause 3 bond under 9 CFR 201.29(c). If the clearing arrangement ends, you will need your own Clause 2 bond before buying again.
No. One Clause 2 bond covers both buying activities. You only need a second, separate bond if you also sell livestock on commission, which is a Clause 1 bond.
AMS says payment is due before the close of the next business day after the purchase and transfer of possession. A missed payment is what triggers claims on this bond.
Yes. AMS accepts a trust fund agreement backed by federally insured deposits or U.S. obligations, or a trust agreement backed by an irrevocable standby letter of credit, alone or combined with a surety bond.
