Contract production requires special considerations
WEST LAFAYETTE, Ind. As producers look for ways to increase their farm incomes or at least stabilize them contracting is a growing trend in both grain and livestock production.
Specialty crops those nontraditional commodities usually grown to the specifications of particular clients require some unique considerations, says Purdue University agricultural economist James Pritchett. He says it's worthwhile to consider specialty crops, but not without studying how they affect the marketing and production practices of the "traditional" farm.
Examples of value-added crops are waxy corn, white corn, clear hilium soybeans and soybeans that are high in oleic acid. These crops often earn premiums above normal commodity prices because of their special attributes.
Pritchett says maintaining the desired traits of specialty crops may require certain planting, harvesting, handling, storage and processing practices. Formal contracts between purchasers and producers ensure markets for the products, and that the grains will be suitable for end users.
For livestock producers, a major motive for contracting appears to be the availability of financing, according to Purdue agricultural economist Ken Foster. "Many producers strapped for cash find themselves with empty facilities and time on their hands," he says. "In this case, a contractor may provide the hogs, veterinary service and feed, if the farmer will supply the labor and buildings."
However, Foster says with hog prices on the upswing, hog producers should be cautious about entering into contracts that limit their potential earnings.
Pritchett and Foster recommend that producers contact attorneys, technical and financial experts, and other producers to help them understand contract details. Some points to consider:
Does the contract require additional investment in equipment and is the contract duration long enough to recapture those costs?
Do facilities and equipment need to be certified or approved?
How is the producer paid? Are the payment terms clear?
Under what conditions can the contract be terminated, renewed or renegotiated?
Are provisions for conflict resolution spelled out in the contract?
Compiled by Steve Tally, (765) 494-9809; firstname.lastname@example.org
Purdue News Service: (765) 494-2096; email@example.com