Farmers' Use of Contracts Has Declined Over Last 25 Years

A contract governing the production of agricultural commodities is a legal agreement between a farm operator (or producer) and another person or firm (a contractor or integrator) to produce a specific type, quantity, and quality of crops or livestock. The use of contracts, instead of traditional cash sales, is one tool producers use to manage income risks. Other strategies include diversifying production, hedging through futures markets, participating in Federal crop insurance, and investing in on-farm storage. Producers also use contracts to guarantee they are compensated appropriately for higher quality products, to create specific outlets for their products, and to provide assurance for debt financing.