The 2nd of a 2-part series discusses legal issues for the agricultural lender to the producer, issues for the lender to the processor, and case studies. According to the USDA in 1993, 11% of all farms entered into production or marketing contracts, and those contracts resulted in 32% of US commodity production. This reflected nearly a doubling of such contract use by farms since the 1960s. The use of the contracts continues to increase. The lender to the producer under a production contract should consider several issues, including: 1. assignment, 2. offset/reduction in amounts owed to the producer, 3. rejection of the product, 4. added costs, and 5. timing of delivery and payment. The lender to the processor is faced with 2 primary risks, including: 1. the ability of the processor to timely perform its forward contracts and 2. whether the processor takes title to the product free and clear any liens.
