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Abstract

Contracts are widely used in the production and sale of U.S agricultural commodities. Contracts provide farmers with a tool for managing income risks, obtaining compensation for higher product quality, and providing assurance for debt financing. Processors use contracts to maintain timely flows of products with desired attributes and greater control over the characteristics and consistency of the products they acquire. In 2017, 49 percent of the value of livestock production was raised under contract agreements—usually between farmers and processors—while contracts governed 21 percent of crop production. The share of crops produced under contract has declined in recent years as farmers turned to other methods for managing risks, such as diversification, hedging through futures markets, and investing in storage.

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