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Production Contracts

Production Contracts

Definition

A risk transfer technique often used by farmers who raise livestock, such as poultry. It is a written legal agreement between integrators (typically a large specialized livestock-oriented business) and producers/farmers defining the terms and conditions affecting producer production payments. With this agreement, the producer/farmer provides land, labor, housing, and equipment. In return for these production inputs, producers receive a set payment from the integrator based on pounds of crop or livestock produced. One of the key advantages for producers/farmers is the shift of a significant portion of production and market risk to the integrator. Contract livestock producers are somewhat insulated from price fluctuations in the livestock markets and, since they do not own the livestock, have less capital at risk.

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