Use of Contracts Declined Over the Past 25 Years, While the Share in the Total Value of Production Under Contract Has Been Relatively Stable

USDA, Economic Research Service (ERS) classifies contracts as either marketing or production, both of which are established before crops are harvested or livestock production cycles are complete.

Marketing contracts. Ownership of commodities stays with farmers during production. The contract sets a price or pricing formula, product quantities and qualities, and a delivery schedule. Contractor involvement with production is minimal. Typically, crop farmers use marketing contracts, working with intermediaries such as milling operators or ethanol plants.

Production contracts. Contractors usually own the commodity during production. They provide inputs and services, production guidelines, and technical advice to the producer. For example, contractors typically provide feed, veterinary services, transportation, and young animals. Farmers receive a fee for producing the commodity. Typically, livestock producers use production contracts, establishing them with contractors who own the processing and distribution of the processed meat.