Farm Advisory Bulletin
by Attorney General Tom Miller
Production Contract Liens Protect Producers
When farmers contract
to produce ag products, such as hogs or grain, they can be
very vulnerable if the entity they are contracting with has
financial problems. Some other creditor might lay claim to
the commodity, with the contract producer not paid what is
owed under the contract. Producers should consider filing
commodity production contract liens to protect themselves
for what is owed them under the contract. Here's more on the
With today's volatile livestock markets and reports of large hog producers
facing financial hardship, farmers who are involved in production
contracting need to do all they can to protect themselves
from financial risk. Contract producers often have huge sums
of money invested in facilities, feed, labor and other input
costs as part of their responsibilities under their production
contracts. But contract producers can be blind-sided by a
contractor's poor balance sheet -- and can be forced to absorb
the costs themselves for all their inputs.
Contract producers can greatly reduce their risk by filing a commodity production
contract lien with the Iowa Secretary of State.
What is a Commodity Production Contract Lien?
Iowa Code chapter 579B grants contract producers a statutory
lien in the commodities they produce under a production contract.
Chapter 579B defines "commodity" to include livestock, raw
milk and crops. "Livestock" includes beef cattle, dairy cattle,
sheep, and swine. "Crops" include plants used for food, animal
feed, fiber, or oil, if the plant is classified as a forage
or cereal plant; this includes, but is not limited to, alfalfa,
barley, buckwheat, corn, flax, forage, millet, oats, popcorn,
rye, sorghum, soybeans, sunflowers, wheat, and grasses used
for forage or silage. (However, a commodity production contract
lien does not cover plant material produced for use as seed.)
The amount of the lien is equal to the amount owed to the contract producer
pursuant to the terms of the production contract. The lien
applies to the actual product produced or the proceeds from
sale of the products.
How is a Commodity
Production Contract Lien Perfected?
A contract producer "perfects" a commodity production contract lien by properly
filing a financing statement (UCC-1) in with the Iowa Secretary
of State (SOS). By Iowa law, a contract
producer attempting to perfect a commodity contract production
lien on livestock or raw milk must file a UCC-1 with the Iowa
Secretary of State's Office within 45 days of the livestock's
arrival. However, if the contract producer's production contract
provides for continuous arrival of livestock, the contract
producer must file a UCC-1 with the SOS within 180 days of
the livestock's arrival. A contract producer attempting to
perfect a commodity contract production lien on crops must
file a UCC-1 with the Iowa Secretary of State within 45 days
after the crop is first planted.
Contract producers can obtain the UCC-1 form from the Secretary of State website
A commodity production contract lien that is properly perfected
and filed is in effect until one year after the livestock
and/or crop is no longer under the authority of the contract
do Commodity Production Contract Liens Protect Contract Producers?
A properly perfected commodity production contract lien makes the producer
a secured party and the contractor a debtor. Not only is the
contract producer a secured party, he or she is "superior"
and shall have priority over conflicting liens or security
interests, including those that were filed before
the contract producer perfected the commodity production contract
lien. This "super priority" status means that a contract producer
holding a properly perfected commodity production contract
lien will be at the "head of the line" to be paid should the
company fail to make any payments owed under the contract
is a Commodity Production Contracting Lien Enforced?
A commodity production contract lien is enforced like any other security interest
under Iowa's Uniform Commercial Code. However, given the legal
complexity of this process, a contract producer generally
should hire an attorney if it becomes necessary to enforce
a commodity production contract lien.
A contract producer cannot waive the right to file a lien, pursuant to Iowa
Code Ch. 579B. If a contract producer does
sign a contract that has a lien waver in it, the contractor
cannot enforce that part of the contract. In addition, including
a clause requiring a contract producer to waive a right to
file a commodity production contract lien is unlawful under
the Attorney General's Office.
you have additional questions or need assistance, please call
or write to the Farm Division, Iowa Attorney General's Office,
Lucas Building, Des Moines, Iowa 50319. Call 515-281-5351
(Media: contact Bob Brammer, 515-281-6699).
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