AgDM newsletter article, June 1999

Production contracts and liens 

Neil HarlBy Neil E. Harl, Charles F. Curtiss Distinguished Professor in Agriculture and Professor of Economics, 515/294-6354, harl@iastate.edu

On May 24, 1999, Iowa Governor Thomas Vilsack signed into law a bill, H.F. 322, dealing with several aspects of production contracts and with the security position of producers who are producing commodities under contract.  The bill took effect when it was signed into law.

New code chapter on production contracts

A new chapter of the Iowa Code was enacted in the legislation and applies to a production contract relating to the production of a commodity owned by an active contractor and produced by a contract producer at the contract producer's contract operation.

Generally the new rules apply if:

The new provision states that a contractor is not to enforce a passage in a production contract specifying confidentiality.  The confidentiality provision is void, even if it is stated orally or in a separate document.  A contractor executing a production contract with a confidentiality provision is guilty of a fraudulent practice.

New and amended liens

The same bill, H.F. 322, provides for new lien filing opportunities for producers.

For livestock, where the livestock are not sold or slaughtered by the contractor, the lien is on the livestock.  If the livestock are sold by the contractor, the lien is on the cash proceeds from the sale.  In the event the livestock are slaughtered by the contractor, the lien is on "any property of the contractor that may be subject to a security interest."

For raw milk, if the milk is not sold or processed by the contractor, the lien is on the raw milk.  If the raw milk is sold by the contractor, the lien is on the cash proceeds from the sale.  If the raw milk is processed by the contractor, the lien is on any property of the contractor that may be subject to a security interest.

The lien on livestock or raw milk is created at the time the livestock arrive at the contract livestock facility and continues for one year after the livestock are no longer under the authority of the contract producer.

For production contracts involving the production of crops, the lien is on the crop if the crop is not sold or processed by the contractor.  If the crop is sold by the contractor, the lien is on the cash proceeds from sale.  If the crop is processed by the contractor, the lien is on "any property of the contractor that may be subject to a security interest."  The lien on a crop is created at the time the crop is planted and continues for one year after the crop is no longer under the authority of the contract producer.

To preserve a lien under this provision, a contract producer must file a lien statement in the office of the Secretary of State.  In general, the lien must be filed within 45 days after livestock arrive at a contract livestock facility or 45 days after a crop is planted.  Again, a waiver of the right to claim a lien is not enforceable.

 

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