Farm Advisory Bulletin
by Attorney General Tom Miller

Commodity 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 story:

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 at www.sos.state.ia.us. 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 producer.

How 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 producer's contract.

How 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.

Waivers unenforceable

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 Iowa law.

Call the Attorney General's Office.

If 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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