Livestock Dealer Bonds 101

Livestock Dealer Bonds 101

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Dealing livestock is a serious business and one that can lead to major consequences if not managed correctly. To help protect livestock producers and the general public from bad livestock dealing practices, a specific type of surety bond exists to guarantee that livestock dealers will follow certain rules and regulations or face a financial penalty. This type of surety bond is known as a livestock dealer bond.

Keep reading to learn more about how livestock dealer bonds work and why they exist. 

What is a Livestock Dealer Bond?

If you are an individual or business that sells livestock anywhere in the United States then you need to secure a livestock dealer bond or you won’t be able to get your hands on a livestock dealer license. The Packers and Stockyards Act requires you hold this bond to get your license. 

The reason these requirements exist is because livestock dealer bonds can help guarantee that a livestock dealer will remain compliant with all state and federal laws, which helps protect livestock producers.

A livestock dealer bond is a type of a surety bond and like all surety bonds involves three distinct parties.

    • Principal. This is the party required to hold the bond and in the case of a livestock dealer bond is the livestock dealer. 

      • Obligee. The party that requires the bond is known as the obligee and this is usually a state or federal licensing authority or agency.

        • Surety. The company that provides the bond to the principal and backs it is the surety. They’re the one to initially pay out any claims (but the principal does need to pay them back) if the principal doesn’t operate according to current rules and regulations regarding the buying and selling of livestock.

        The following terms can be helpful to know when navigating buying a livestock dealer bond. 

          • Bonding capacity. This term refers to the maximum amount a claim filed against the surety bond can be. So if the bonding capacity is $25,000 a claim can’t be filed for more than that amount.  

            • Bond premium. The bond premium is essentially the cost to purchase the bond and usually is a certain percentage of the bonding capacity. 

              • Bond term. How long your livestock dealer bond will be active for is known as the bond term. 

              Who Needs A Livestock Dealer Bond?

              Anyone who sells, buys, or negotiates deals surrounding livestock likely needs a livestock dealer bond. It’s often required to post a livestock dealer bond to participate in auction markets, stockyards, buying stations, and concentration points. 

              What types of animals are considered to be livestock? These are a few examples, but you can consult the U.S. Department of Agriculture’s Grain Inspection, Packers & Stockyards Administration (USDA’s GIPSA) where you will file the bond about which animals are considered to be livestock.

                • Cattle

                  • Sheep

                    • Swine

                      • Horses

                        • Mules

                          • Llamas

                            • Bison

                              • Goats

                              How Do You Get A Livestock Dealer Bond?

                              To get a livestock bond, you can buy one from a surety bond provider like Worldwide Insurance Specialists, Inc. 

                              In order to get a livestock dealer license, you need to meet both the USDA’s GIPSA guidelines and your state authority’s guidelines. You can get the necessary paperwork to file in order to get licensed as a livestock dealer from USDA’s GIPSA. Once you have a livestock dealer bond, you will apply for your license and will pay any licensing fees required. 

                              How Much Does a Livestock Dealer Bond Cost?

                              How much you’ll pay for a livestock dealer bond depends on a few different factors. Usually the amount you pay is based on a certain percentage of the total bond amount (usually between 1 percent and 10 percent). For example, if the required bond amount is $10,000 and you have to pay 10 percent to get a livestock dealer bond, you’ll pay $1,000. 

                              The percentage your rate is based on will vary based on a multitude of factors, including:

                                • Your personal credit score

                                • The bond amount

                                • Your business assets

                                  • Your business liabilities

                                  Usually, the better your credit score is, the more business assets you have, and the less liability you have, the better your rates will be and the less you’ll pay. Basically, surety companies charge higher rates to applicants who seem like they pose a higher risk of breaking the terms of their livestock dealer bond. 

                                  State and federal authorities determine what the bond amount must be, so check with your local authorities to find out how much your bond amount needs to be. 

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