The “Last Roundup” — a financially mandated dispersion sale — marked the end of Leachman Cattle Company (LCC) of Billings, MT, as one of the world's largest cattle seedstock operations. If you knew nothing else last Sept. 14, the first day of a three-day auction, you knew the Leachmans were in big trouble when you had to buy your own sale-morning coffee.
The atmosphere that day was a world away from the extravagant, wine-and-dine events that personified LCC as much as the cattle carrying the famous Hairpin brand. A buck for coffee wasn't much to whine about though, when one considered that the state of Montana listed at least 38 creditors filing liens against LCC.
In the end, the sale brought in a reported $4.3 million from females, calves, embryos, semen and some bulls. Still, it wasn't enough to pay off the massive secured and unsecured debt LCC racked up over the last several years.
The Troubles Line Up
While LCC's financial woes, then and now, have gained most of the headlines, less amplified are the broken family relationships left fluttering in the wash of a two-year tailspin.
The saga goes back to when LCC expanded into a limited liability corporation in 2000. That was when the troubles began to pile up.
LCC's U.S. genetics business, fraught with mounting production costs, began losing money after some hefty property expansions in 2000.
The firm's international genetics enterprise in semen and embryos was falling victim to rising costs and collapsed foreign currencies.
An expensive venture into a vertically integrated branded-beef business — the Montana Range Meat Co. (see “Montana Muscle,” BEEF, October 2001) suffered serious financial hits.
Investments into the Hairpin Cavvy, LLC, patriarch Jim Leachman's horse enterprise, arguably contributed to the company's dire financial situation. Jim is adamant that in the scope of things, the money put into Cavvy was not material to the downfall.
Allegations that LCC was delinquent in paying as much as $1 million for livestock prompted an investigation in 2002 from the U.S. Packers and Stockyards Administration.
Two Virginia physicians and their spouses filed separate lawsuits against LCC in November 2002 to recover their $2-million investment. They claim the money was obtained by fraud. The Leachmans claim the suit scared off other potential investors.
Little-discussed allegations of internal embezzlement involving a former LCC employee. No criminal or civil charges have been filed in that case and restitution has reportedly been made.
By the end of 2002 there was little to stop the accumulation of LCC's troubles which, coupled with severe and persistent drought, toppled the company.
The New Alignments
Today, Jim, 62, says he's left with only his Billings, MT, residence and a small property where middle son, Seth, 35, lives. The two are aligning themselves with a cadre of former LCC breeder-cooperators into a new seedstock enterprise — tentatively called “The Cattle Barons.” Butch Black, a Lakeside, NE, rancher and former LCC cooperator has decided to invest with Jim and Seth.
Meanwhile, oldest son, Lee, 37, the most visible of the three Leachman boys (Justus lives and works independently in California as a stockbroker), relocated his business interests to Colorado. He's gathered his own group of former LCC cooperators and is teaming up with an outside investor in his own genetics enterprise.
It's important to note the only communication today between the Jim/Seth team and Lee is through their lawyers. Most LCC property is tied up in a tangle of internal and external lawsuits. The last “substantial asset” left from LCC is the land, which is for sale.
Among the lawsuits is a fight over the company's intellectual property (IP) — mostly trade names, marketing rights, mailing lists and databases.
That IP was sold last fall, but Jim disputes the sale, arguing that it was not a legal transaction. That issue was being heard in a Billings, MT, courtroom at press time.
In 1999, the Leachman family owned 100% of LCC. Following formation of the limited liability corporation, Jim says he and his wife, Corrine, owned 30% of the company.
That marriage ended soon after with Corrine holding promissory notes after she sold two-thirds of her shares. She remains today an unsecured LCC creditor to the tune of about $1 million in principal and interest.
“The upshot,” Jim says, “is that I was chairman of the board but I only owned 15% of the company after the divorce.”
The wheels really started to fall off, Jim says, following a board meeting in August 2002. “I didn't agree with the direction the board was taking. In the end, they simply voted me out to pasture.”
As late as fall 2003, Jim was ready to ride off into the sunset on one of his Hairpin Quarter Horses. He never wanted to compete against his sons or any future LCC. But now, with his financial demise and no income-producing assets, Jim says he's been forced to reconsider his future.
For Lee, it was clear that as LCC got into late 2002 the business was going to have to change substantially.
“We had to do this by selling assets, restructuring debt and obtaining additional capital,” he says. “And there was a lot of debate on how we were going to do it all.”
Because there was so much disagreement, the only solution going into early 2003 was to liquidate, he says. “We were very close to getting some new investors — but the deal blew up and it never got put back together,” he says.
Lee adds that in retrospect the direction decided by LCC's board was not one of bad concepts. “It's just that we had bad timing and bad implementation,” he explains. “Everything we had built — and eventually sold is going forward today — just not as a part of LCC.”
Recently, BEEF magazine sat down separately with Jim and Lee to hear their stories — and learn of their futures. In doing so, Jim sums up the current situation.
“This interview is different than any I've ever done,” he explains. “There are two sensitive areas though — one is with regard to legalities, and the other is the situation with my son Leland — which is very sensitive.”
BEEF: You and your family initiated one of the first and largest cattle seedstock cooperator programs in the world. Is that where you're headed again today?
Jim: It worked then — it can work again. We had a very good system where producers multiplied our genetics, produced bulls to be marketed and built multi-generation Leachman cow herds for the cooperators.
It's no piece of cake bringing outside people into your business. What happened the past couple of years with LCC goes against my grain.
The net result is that about 26 former LCC cooperators, disenchanted with the change of events and future plans, gravitated to us. They've sent 850 bull calves — primarily Angus, Red Angus and Stabilizer composites — to performance test at a Custer, MT, feedlot.
The cooperator concept can be self-supporting — this new one is structured better than LCC. We're going to take all the determination, energy, experience and skills we have and make this thing work.
BEEF: You've been in tough financial spots before. What's different about where you're headed today from where you've been?
Jim: I never expected to be in this position financially. I'm down to fewer cattle today than I had when I was 10 years old. This is the only game in town for me. Seth and I have had our differences and disagreements, but we've always ended up going in the same direction and liking the same kind of cattle.
One philosophical difference from the old company is our emphasis on family values as compared to corporate values. And, gone is the demand to be bigger and bigger at the expense of cooperator and customer satisfaction.
I would be lying to say I have big grandiose ideas of selling 2,000 bulls/year again. I just need to get on my feet again for starters.
We bought 10 head in the LCC sale last spring for $70,000 — three heifers and seven cows. There are some really great genetics in there.
Of course, we still have the horse business — with about 200 foals coming due this spring. The horses were, quite frankly, a way for me to stay an independent livestock breeder (he laughs).
BEEF: As you look at the next phase of your life, how have your financial troubles and family breakup affected you personally?
Jim: I'm not sure whether to use past or present tense to answer that. I've not always been prone to being very emotional and sentimental. But, as bad as this thing is, after what has happened, I'm not sure you can hurt me any more.
The net of all that happened was Seth and I were without assets and pretty much without jobs. I was a little more optimistic things would come out better than they did.
Everything I have, everything I am, is wrapped up in LCC. I don't golf, I don't fish, I don't go to bars. This business is my recreation and my livelihood. That doesn't mean I'm any better than anyone else — it's just who I am. My motivation is in breeding livestock.
BEEF: You've moved to Colorado. What can you tell us at this point about the structure of your new business?
Lee: I contracted with my partner to build what we call a “virtual cattle company.” We'll be a marketing and sales company with supplies of bulls coming from other sources. Some will be from former LCC cooperators — 12 of them representing about 1,500 bulls/year.
This new company is going to feed and market bulls and maybe females. We won't own any animals.
In addition, my partner is forming a second company that will have a small, elite nucleus of females — probably less than 100. Then we're going to do a lot of embryo transplanting (ET) — maybe up to 1,000 embryos/year.
My job is to test and market the bulls. But beyond that, we'll buy elite bulls together as a group. Those genetics will go into the ET and cooperator herds and also produce semen for the market.
BEEF: You've wanted for some time to move your bull test somewhere south. Why does that make so much sense?
Lee: I've been intrigued with this for a long time regardless of who owned what. It really never made sense to me to feed cattle in Montana. Obviously, it makes sense to market bulls in Montana — it's where people go to buy seedstock.
By going to Colorado we not only gain a cattle-feeding advantage, we can use my partner's experience in performance testing. He has a very strong background in genetics research.
The Colorado feedyard is set up really well for what we need — 265, 10-head pens — where we can get some very accurate feed efficiency data. That's what we're focused on today.
BEEF: How much does your enterprise hinge on the availability of LCC intellectual property? Could you go on without that property?
Lee: (long pause) Sure we could. I think it would limit us. Obviously, there's a lot of data we want to analyze — that would be difficult to do without the IP.
BEEF: Can you use the Leachman name?
Lee: (longer pause) We don't think there's a conflict with using the name — and we currently own the Leachman trademarks.
BEEF: That said, what will you have available for your customers this year?
Lee: There are a whole bunch of genetics customers wondering where to go. Now, they're going to have another option.
We've got 1,150 bulls on feed — 360 Angus, 310 Red Angus and the rest are Stabilizers which is the four-breed mix, with some Gelbvieh-cross and Simmental-cross hybrids.
We're actually selling bulls private treaty right now and we have a sale scheduled for March.
BEEF: What is your philosophy on trait selection as you go forward with your new venture?
Lee: We want to close the loop on economic expected progeny differences (EPDs). I thing the industry has exhausted most of the good we're going to get out of growth traits. There's no longer great economic advantage to increasing yearling growth. Any more and the cows are going to get too big — we don't need bigger than 1,300-lb. cows.
Also, birth weights are as low as they need to be with the cattle we have. We're putting more muscle into our cattle. But, once you get beyond that what do you do next?
I think the emphasis needs to be on getting the reproduction right on the cattle and selection for feed efficiency. No one is selecting for those things — traits that get to the core, economically.
Then those traits need to be turned into a number (an EPD) that a rancher can use. It's the wave of the future. We're missing the boat by just chasing growth.
We're still advocating crossbreeding, despite the current trend. And, we see that part of the business growing. Sometime, somewhere, people are going to come back to crossbreeding.
We're excited, and our cooperators are with us because they're buying into our philosophy and direction.
BEEF: Looking back, could LCC have survived as we knew it a few years ago without the legal and family problems that you're experiencing now? Was the model flawed?
Lee: It became inevitable that we were going to have to make changes. Conceptually, some of the things we were doing are working now — for other people. But, in the end, the bull production cost structure was too high.
The way we ran our cow herd was pretty efficient. But, we had to be fully stocked and we ran out of enough capital to keep the place fully stocked. We diminished the size of the cow herd — that was a negative.
The second issue was that our post-weaning costs were inefficient. You can't run a 2,000-head feedlot efficiently — certainly not like you can a 10,000-head feedlot.
Then, we got really complicated — and we had a lot of distractions — things like the South American business, the horses, trying to sell retail beef.
The model wasn't flawed though. Seeing the genetics program dissolve into nothing would have been extremely depressing — and probably at the end of the day, would have been much worse than losing all the tradition that was tied to Leachman Cattle Company of Billings, MT.
I'm glad that at least the genetics program will survive and continue. But, I feel really bad that so many of our loyal suppliers did not get paid.