Farmers' Guide to Peanut Contracts

The Rural Advancement Foundation International - USA
FARMERS’GUIDE TO
PEANUT CONTRACTS

2
FARMERS’GUIDE TO
PEANUT CONTRACTS
JANUARY 2007
This booklet is written and published by
Rural Advancement Foundation International-USA (RAFI-USA).
It is intended especially for farmers in the United States.
This booklet is for educational purposes only. To learn the details about
any certain point, read the current statutes, regulations, and policy notices,
which can change frequently. These materials cannot substitute for an
experienced lawyer who is up to date on the latest changes in federal,
state, and local laws and regulations.
Contributions from Scott Marlow, Becky Ceartas, and Jess Ana Speier
Edited by John B. Justice
Layout by Regina Dean Bridgman
Cover Photograph: John Branham, Jr. by Scott Marlow
Photographs on pages 5, 6, and 13 by Rob Amberg
Other photographs by Scott Marlow and RAFI –USA staff
PUBLISHED BY
RURAL ADVANCEMENT FOUNDATION INTERNATIONAL - USA
P.O. BOX 640
274 Pittsboro Elementary School Road
Pittsboro, NC 27312
TEL: 919-542-1396
FAX: 919-542-0069
www.rafiusa.org
Text © 2007 Rural Advancement Foundation International—USA
Anyone has permission to use this material. We appreciate your crediting
RAFI-USA if you reprint any portion of this document.

3
FARMERS’GUIDE TO PEANUT CONTRACTS
Table of Contents
1. INTRODUCTION .........................................................................................................................1
2. DYNAMIC CHANGES IN PEANUTS........................................................................................2
3. CONTRACT FARMING..............................................................................................................3
A. MARKETING CONTRACTS..........................................................................................................................3
B. PRODUCTION CONTRACTS……………………………………………………………………………..…3
C. OPTION CONTRACTS……………………………………………………………………………………....3
4. CONTRACT PEANUT FARMING – FARMER CONCERNS................................................5
A. GROWING WITHOUT A CONTRACT............................................................................................................5
B. TIMING, FAIRNESS AND CORPORATE INTEGRATION ISSUES......................................................................6
C. SHORT-TERM COMMITMENTS ...................................................................................................................7
D. CAPITAL INVESTMENT...............................................................................................................................7
E. INCREASING CONTRACT REQUIREMENTS ..................................................................................................7
F. BENEFICIAL INTEREST ISSUES. ..................................................................................................................7
5. EVALUATING CONTRACT TERMS .......................................................................................8
A. COMPENSATION.........................................................................................................................................9
B. MANAGEMENT, PRODUCTION PRACTICES, AND EQUIPMENT UPGRADES................................................11
C. DELIVERY AND STORAGE REQUIREMENTS. .............................................................................................11
D. INCORPORATION BY REFERENCE AND ENTIRETY/INTEGRATION CLAUSES.............................................12
E. EXCUSE OF PERFORMANCE......................................................................................................................12
F. RIGHT OF ACCESS. ...................................................................................................................................13
G. DISPUTES, TERMINATION, DAMAGES AND REMEDIES ............................................................................13
6. CONCLUSION ............................................................................................................................17
QUICK REFERENCES ............................................................................................................................19
1. RESOURCES AND WHERE TO GET MORE INFORMATION......................................... 20
2. RELEVANT GOVERNING LAWS...................................................................................................21
A. UNIFORM COMMERCIAL CODE (UCC).....................................................................................................21
B. PRODUCER PROTECTION ACT AND SIMILAR STATE PROTECTIONS.........................................................21
C. AGRICULTURAL FAIR PRACTICES ACT (AFPA).......................................................................................21
3. BEFORE SIGNING A CONTRACT FARMER CHECKLIST.............................................22
4. FARMERS'GUIDE TO PEANUT CONTRACTS EVALUATION FORM.........................23

1
1. Introduction
Contracts are serious business. A contract is a
legal document with binding obligations and risks. You
may be deciding whether to sign a peanut contract. Or,
having already signed one, you may want more informa-
tion. Either way, this booklet can help. It doesn’t tell you whether a
contract is right for you. That’s your decision and no one else’s. But
this guide can help you understand key contract issues, how contracts
work and how they fit into the larger picture of current peanut farming.
It gives you information to use as you decide if a peanut contract will
benefit you and your farm operation.
Keep in mind that almost all current peanut contracts are written by
companies. And because the company wrote the agreement, it reflects
company interests and aims first and foremost. The contract is usually
presented to the farmer on a pre-printed form. The farmer is asked to
sign on pretty much a take-it-or-leave-it basis, with few or no changes.
You don’t have to sign the contract--contracts are voluntary agreements
no matter what financial necessities caused you to sign. It’s up to you.
You must decide if a particular contract’s risk, obligations and rewards
are in your interest. If you do sign, you are legally bound by the con-
tract’s terms as written. You promise certain things and other things are
promised you. The law has penalties for breaching contract terms. And
if things don’t work out, you cannot claim personal circumstances influ-
enced your decision to sign.
This book will give you useful general information as well as some references for other resources
you can use. However, certain things about contracts are beyond the scope of this guide. You may
need an experienced lawyer to help you evaluate specific contracts and to give you details on current
statutes, regulations and policy. All are involved in contracts, and all can change frequently.
Section 2 - has basic information for new peanut growers on the peanut industry’s history and
recent changes.
Section 3 - discusses contract farming in general with a focus on problems faced by contract
farmers.
Section 4 - RAFI-USA reports on what we have learned from interviews conducted in 2005 with
contract peanut farmers.
Section 5 - lists and describes some of the key terms found in peanut contracts.
The guide concludes with some tools for you to use, including a list of helpful resources and a
farmer’s checklist to use as you make decisions about signing a new peanut contract or renewing
one you already have.
This booklet can help you understand what is in a peanut contract--both risks and rewards--so
that you can make a decision that works out for you and your business.
This booklet is pub-
lished by the Rural
Advancement Founda-
tion International-USA
(RAFI-USA).
It is intended for farm-
ers who are considering
growing peanuts for
the first time and for
those who are deciding
whether or not to
expand their operations
and investment in
equipment based on
contracts in the United
States.
This booklet is for
educational purposes
only.

2
2. Dynamic Changes in Peanuts
The Federal peanut program was radically changed in 2002. This caused major shifts in how and
where peanuts are grown and marketed, and peanut markets are still changing to this day. Growers
and others continue to sort out the best responses to these changes, and ways to mitigate risk.
Since 2002, several trends have become clear1
.
1,2
, Dohlman, Erik and Janet Livezy, “Peanut Backgrounder” Electronic Outlook Report OCS-051-01, U.S.D.A. Economic research
Service, 2005.
Other Sources: Dohlman, Erik, Edwin Young, Linwood Hoffman and William McBride, “U.S. Sector Adapts to Major Policy
Changes” in Amber Waves, United States Department of Agriculture Economic Research Service, November 2004.
Farmers are getting lower peanut prices.
This resulted from eliminating restrictions on price and do-
mestic production inherent in the old quota system. Demand
for peanuts has gone up in recent years. However, potential
price gains have been offset by increases in acres planted in
peanuts, along with per-acre yield increases.
Peanuts are being grown in more places.
The old program had limits on where a farmer could grow
peanuts. That limit is gone, and production has shifted to
new areas with conditions right for good yields.
Peanut markets are less stable, requiring farmers to find
ways to reduce their risk.
Current Federal peanut programs resemble those for other
commodities. However, other commodities have marketing
tools not available for peanuts. An example is the absence of
a peanut futures market similar to that for cotton. This elimi-
nates futures or time sales as a way for farmers to help stabi-
lize prices. In addition, free trade agreements may destabilize
peanut markets even more. NAFTA has already agreed to let
Mexican peanuts onto the U.S. market as of 2008. Signs
point to additional future imports under NAFTA and GATT.
On the plus side, peanut farmers do have access to certain
risk-management tools. Most farmers receive crop insurance
for their peanuts, and according to the Risk Management
Agency, in 2005 80% of North Carolina peanut acreage had
crop insurance. Policies vary from state to state. While APH
crop insurance policies for peanuts are popular, at this time,
peanut farmers cannot get income-protection policies such as
those available for corn and cotton. Another way to increase
the farmer’s options is joining a marketing cooperative; three
marketing coops are operating as of now. Research shows
that cooperatives provide members more marketing options
and stronger bargaining power.
The Farmer’s Challenge
Many farmers are using market-
ing and production contracts to
manage risks, and the number is
rising. The domestic use of
marketing contracts is a recent
development. Although such
agreements were common for
exports for years, it’s only since
2002 that marketing contracts
have been used for domestic
food products.
Overall, the rise of peanut con-
tracts has been lightning-fast.
As of 2004, 80% of the peanut
crop was produced by marketing
and production contracts2
. The
terms of peanut contracts have
changed each year, and are
expected to change in the near
future.

3
3. Contract Farming
Trends and forms of farm contracts:
U.S. agriculture is following a steady path to increased contract farming. In 1969, 12% of U.S.
farm goods were produced under contract. By 1991 the figure had risen to 29%, and in 2003 it
was 40%. Both the number of farms and the value of goods produced increased sharply over
the last several decades. This section will sketch in the rise of contract farming in general; it
will describe three kinds of farm contracts relevant to peanuts; and it will discuss risk/benefits for
contract farmers.
Everyone understands that a contract is a mutual agreement between two or more parties to carry out
certain actions. But it’s necessary for farmers to have a good, solid grasp of the exact legal meaning
of farm contracts.
A. Marketing contracts:
Contracts that peanut farmers have used for
export peanuts are marketing contracts. They
differ from production contracts in important
ways. First, the grower owns the commodity
until it is delivered to the buyer. Second, the
farmer makes production decisions. Third,
price risks are shared by the farmer and the
contracting company.
In short, marketing contracts allow growers
more independence than production contracts
in terms of owning the commodity, managing
the farm, and choosing production practices.
B. Production contracts:
These are contracts under which a farmer
agrees to use company-specified production
practices to produce a marketable product.
The company (integrator) typically keeps
ownership of the product and of some inputs.
Production contracts aren’t used in peanuts as
much as in hogs and poultry, where they are
the most common arrangement of production.
The track record of production contracts
shows some serious questions for farmers:
Contracts usually require farmers to make
large, long-term investment, while getting
only short-term income security from the in-
tegrator. The integrator controls production
costs and price for the product. When disputes
arise, some contracts have clauses that that
force the farmer into mandatory binding arbi-
tration, an expensive process that can strip the
farmer of the right to settle the dispute in
court.
C. Option contracts:
An option contract for peanuts is pretty much
like a marketing contract. The company
agrees ahead of time to pay the contracting
grower a certain price for a specific quality
and amount of peanuts. But the payment is
for the option to buy the peanuts out from
under loan, rather than for the peanuts them-
selves. The price that the farmer receives is
the government payment from putting the
peanuts under loan, plus the option payment
from the company. This helps the company
plan ahead, reduces their costs and delays
their investment in the peanuts. Later in this
guide, we’ll go deeper into specifics of option
contracts, including payment.
As a starter, here is how the law generally defines a contract:
A set of promises creating an agreement between two or more parties that is enforceable by law
and which can be either written or oral; breaches of the agreement are subject to legal remedy.
There’s more, but that description will do as we look at three basic kinds of farm contracts that
relate to peanut production. They are marketing, production, and option contracts.

4
While peanuts are generally grown under marketing and options contracts, it is important to under-
stand the difficulties that have arisen under production contracts. Peanut contracts are expected to
evolve. The problems found in hog and poultry production contracts can creep into peanut con-
tracts. So peanut growers must track contracts over time, as well as analyzing contracts presented at
any given moment.
Contract incentives for companies and farmers:
Contracts help companies make sure they will have a dependable supply of the product they need;
this helps them cushion the ill effects of market and production fluctuations. And it’s not just a
matter of quantity: Peanut companies are increasingly having contracts stipulate the quality and
uniformity of the product. Companies get other benefits from contracting directly with the peanut
farmer. Direct contracting eases management problems and lets companies limit their financial risk.
And by contracting directly with the grower, the company can stipulate options to buy and other
means of managing its risk.
The peanut farmer has real incentives to consider a contract. A grower’s nightmare is to end up
with no market for the peanuts, having to settle for the loan-rate price. A contract prevents this.
The contract provides a buyer. It gives price information that helps the farmer predict income.
There is no need for the farmer to risk a season’s economic fate in a market that could send peanut
prices plunging low. Farmers with longer-term contracts get the benefit of increased stability to
plan ahead.
What are the farmers’ risks?
The potential benefits are real, and so are the
risks. No contract can eliminate 100% of the
farmer’s risk. Here are some of the important
risks that a farmer must consider along with the
benefit of a contracted price and other incen-
tives to sign a peanut contract.
The contract price may turn out to be lower
than the market price at harvest time.
Weather, disease and pests can damage the
crop and prevent it from meeting the com-
pany’s standards.
Input costs can rise and cut into net income.
Contract terms may limit farmers to certain changes, denying farmers the option of adopting
new technologies.
Contracts can force a farmer into paying for and using expensive new equipment and technolo-
gies to the detriment of the farmer’s net income.
The company can refuse to renew the contract for following year, even after the farmer has in-
vested in equipment.
These and other farmer risks will be discussed in more detail in the sections that follow.

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4. Contract Peanut Farming – Farmer Concerns
The farmers we interviewed were mostly long-time growers
who had been growing peanuts for years. Most were growing
other crops besides peanuts. All were adjusting peanut opera-
tions to changes we discussed earlier in this guide. All were
being affected by the end of the old quota system, the rise of
contracts, and changes in markets.
In general, the farmers we spoke with had serious concerns
about their peanut business. Many had invested heavily in
equipment specific to peanuts and didn’t see alternative crops
that would generate enough income. But, said farmers, the
peanut industry presents its own problems. The new reality is
that contracts provide the surest way to current markets, so
they were producing under contracts. But these farmers felt
that they are on shaky ground. Contracting companies seem to
hold a lot of the cards: Under the new rules, companies can
now grow peanuts anywhere growing conditions allow. "The
companies are able to control access to new markets almost
completely." There are now relatively few peanut companies
for growers to deal with. And farmers worry about the very
basic matter of how peanut contracts are awarded.
So it’s fair to say that farmers interviewed for this guide were worried about their peanut contracts
on a number of scores. The rest of this section will go into some detail on six major concerns that
farmers told us presented significant questions about contracts.
A. Growing Without a Contract.
Farmers who have peanut
contracts have a lot to tell
us about how contracts
work. While preparing
this guide, RAFI - USA
talked with contract pea-
nut farmers in 2005 and
2006 to get their first-hand
experience. Their thoughts
on the benefits and risks
will be especially useful
for farmers deciding
whether to sign their first
peanut contract.
A grower can choose to produce peanuts with-
out a contract. We interviewed growers think-
ing about doing so. Their hope was that they
could sell their crop to shellers needing more
peanuts than the option contract supply pro-
vided.
This option has real risks. The most serious
one is the possibility that shellers might have
all the peanuts they need, and the grower will
have raised a crop with no market other than
government marketing loans.
One way of reducing risk is joining marketing
cooperatives that can negotiate with shellers at
harvest. An increasing number of farmers are
investigating such associations.

6
B. Timing, Fairness, and Corporate Integration Issues
1. Time pressure to sign or not:
The way it works now, farmers usually don’t have much time to decide whether to sign an of-
fered contract. Companies typically allow the grower only a few days to make a decision. Un-
der severe time pressure, the grower must analyze the contract, get legal or other professional
advice, and investigate other options. The farmer could wait, hoping that another contract will
be offered later on. But by waiting the farmer risks that there will be no additional contracts,
that subsequent contracts will be for a lower price or that the company will look elsewhere for
growers.
2. Fairness in how peanut contracts are awarded:
Farmers are uneasy about the process. They understand there are more farmers than contracts,
and that some farmers won’t get a contract. As realists, they accept competition, as long as the
competition is fair. The problem is, farmers told us, they can’t tell if the current system is fair
or not. They are given a complex contract to study and decide on under great time pressure and
often little or no helpful information from the company. In one case even the company’s ware-
houseman couldn’t explain how things worked. He knew he had a certain number of contracts
to offer for a certain volume of production at a certain price. Beyond that, he couldn’t help
farmers much. Would the company offer a higher price if farmers declined the first offer? He
couldn’t say. Was there a risk that the company would dump the first group of growers and of-
fer the initial contract to a new set of farmers? The warehouseman didn’t know. If growers
signed the contract offered for this sea-
son, would they get a contract for next
year? Who knows? Clearly, this
murky process puts farmers in a tough
position.
3. Questions of corporate integration:
Farmers expressed concern about the
way corporate integration can affect
awarding of peanut contracts. We iden-
tified at least one instance where this
came into play: A sheller offered farm-
ers contracts on the condition that, if
awarded the contract, the farmer would
buy peanut chemicals from a company
the sheller owned. The farmer might
not like this corporate-integration
clause--it would legally bind him to
using the company’s chemicals whether
or not he could get a better price
elsewhere, whether or not he, as the
farmer, believed the company’s chemi-
cals were good for his peanuts. While
this was not a universal concern of
farmers interviewed, it worried some,
and it’s worth keeping an eye on as you
analyze a particular peanut contract.

7
4. Contract Peanut Farming – Farmer Concerns continued
C. Short-term commitments.
Competition is stiff for today’s peanut
farmers. As we’ve mentioned, the standard
contract is for one year only. After that year,
the contracting company may or may not
offer the grower another contract. The com-
pany may offer a new contract with lower
price and volume. The grower has no guaran-
tees.
Farmers are especially concerned about short-
term commitments because competition is
rising from the growing number of peanut
farmers wanting to get a limited number of
contracts. Companies can now award con-
tracts to farmers anywhere peanuts can be
grown. Production is expanding into new
areas of traditional peanut states, as well as
starting up in entirely new regions.
It would seem obvious that long-time, experi-
enced, and skilled peanut growers would have
a competitive edge over brand-new growers.
Not necessarily. "Peanut companies don't
require that growers have a lot of experience
growing peanuts or how to get the best price
for a crop - the company's ideal is a grower
who will sign the company's contract as
offered."
D. Capital Investments.
The farmers RAFI-USA talked with shared a
fundamental concern of other contract grow-
ers: the problem of managing long-term debt
along with short-term income security.
It costs money to earn money growing pea-
nuts. Harvesters and other needs require
capital investment. Growers most often get
this money through long-term loans. Con-
tracts are for one season; loan payments go on
for months and years.
Clearly, a grower is taking a huge risk if he or
she assumes peanut contracts will be offered
for the time required to earn back the capital
investment and loan charges. There is abso-
lutely no guarantee that a current one-year
peanut contract will be renewed at all.
We emphasize this point especially for
first-time peanut growers who are considering
contracts as part of their plans.
E. Increasing Contract Requirements.
Previous peanut marketing contracts did not
require specific production practices and va-
rieties, and the peanut program specified qual-
ity standards. In recent years, contracts have
begun to require specific varieties, and gen-
eral requirements of production practices.
Farmers we spoke with were concerned that
over time peanut contracts will resemble pro-
duction contracts, with companies specifying
production practices and determining all qual-
ity standards.
While these concerns are less pressing for
farmers considering a specific contract, they
are significant when considering investment
in equipment or facilities that require
long-term financing as discussed above. The
greater the investment that a farmer has in
crop-specific equipment and facilities, the less
able they are to reject future contracts.
F. Beneficial Interest Issues.
Farmers are concerned with the unclear bene-
ficial interest issues in current option con-
tracts. U.S.D.A. requires that beneficial inter-
est stay with the farmer in order to get MAL
or LDP payments and for the peanuts to re-
main under loan. Since the contract requires
that the peanuts stay under loan until the
company exercises the option to buy them,
the risk of loss may stay with the farmer until
well after delivery. These liability issues are
currently unresolved, and may become more
of an issue for farmers in the future.

8
5. Evaluating Contract Terms
Understand Before You Sign
We’re now ready to go into some useful
details as you read, evaluate, and decide on a
particular contract placed before you. The
previous information should help you as
background. As you evaluate a contract,
please add to this guide’s help any and all
expert advice you need on contract questions.
Keep this in mind: When you sign a contract,
its terms will govern all aspects of your
relationship with the company.
We will focus on the most common key
terms, the ones you are most likely to come
across. Using examples from actual contracts
we have reviewed, we will discuss the mean-
ing of each term as it affects the contract
grower. We will also point to some states that
have passed laws to protect growers. All of
this is designed to successfully follow the
motto we headlined above: Understand be-
fore you sign. Before tackling each term in
detail, here are a few tips to bear in mind
about understanding peanut contracts.
Be prepared.
Many of the farmers that we spoke with were
concerned about the short period of time that
they had to evaluate offered contracts. It is
best to have a good idea of your situation, in-
cluding production and post-harvest costs,
price needs and alternative crop opportunities
before you anticipate a contract will be of-
fered. It is also good to identify professionals
that you will call on to help you understand
the offered contract before the contract offer
is anticipated. The better the information that
you have going in to the contract evaluation,
the better a decision you can make.
You don’t have to go it alone.
In fact, you should count on getting some ex-
pert help. Contracts are legal documents
written by attorneys and, when disputes arise,
interpreted by attorneys and judges. So please
give some thought to enlisting some experts
on your side. An experienced lawyer can be a
good friend to have. So can Cooperative Ex-
tension agents, growers’ associations, farm
advocates, and knowledgeable farm commu-
nity leaders. They are the kinds of support
people who can help you with common and
complex items like confidentiality clauses,
beneficial interest terms, state law governing
contracts, financial technicalities, and more.
We’ve mentioned before that your resource
team needs to be identified before the moment
when you’re sitting down and having your
first look at the contract. You won’t have a
lot of time to decide in most cases, so prepa-
ration is well worth the time and effort.
Look for contract obligations.
Review the entire contract. See what the
company is obliged to do for you. Contracts
often begin with statements of the company’s
obligations, or duties, to the contracting
farmer. Be aware that the company’s position
is that its obligations to you are only those
written into the contract. So you must iden-
tify and understand what the contract says
about the company’s duties toward you. In
most contracts, you will find a statement that
the company accepts an obligation to pay you
to deliver product that meets standards given
in the contract.
Find out if there’s a cooling off period.
You may sign a contract and decide, for
whatever reason, that you don’t want to fulfill
it. Some (but not all) states protect growers
by allowing them to cancel a contract within a
specified time. Before you sign, see if your
state has this cooling off period. If so, this
gives you a safety valve. You can use the pe-
riod--three days is fairly common--to study
the contract with great care, get any needed
expert help, and reassess contract peanuts as
part of your overall business plan.
The main goal in this section is to
suggest a way that can help you study
and make sense of a particular contract.
Contracts vary from company to com-
pany and area to area, and this guide
cannot cover everything.

9
Contract Terms
Understanding a contract depends on understanding the terms clearly and fully.
This section will go into detail on contract terms. All are common and important
and we’ve done our best to be clear. Still, you will probably have questions about the
content of this section. Also, it’s very possible you will be reviewing a contract with
terms that are not included here. This brings us back to the necessity for you to enlist
lawyers, farmers, extension agents and/or advocates, to answer your questions. Also,
you may have some questions best asked of the company or lenders.
A. Compensation.
If you’re like most farmers, your eye will go straight to the price a contract is offering. Which is
well and good--your goal is a contract enabling you to make some money from peanuts. However,
the price is only a part of understanding how and how much you will be paid. It is important to fully
understand how payments will be calculated. Some contracts stipulate that the price is dependent
on grading, or is for only a portion of the farmer’s production. Pricing conditions may reduce the
overall price for the crop.
Costs. Check the contract for all costs of eve-
ry thing the contract obligates you to do.
While most farmers have a good understand-
ing of their production costs, the contract may
have other requirements that increase your
costs. The contract may require you to dry,
handle or transport the peanuts in a certain
way. Keep in mind the risks of potential costs
that are out of your control. A rise in fuel
cost is a common example. Few contracts
mention this important point. Before you
sign, understand what happens if unavoidable
factors greatly increase your production costs
during the growing season. And if you do
negotiate contract changes, they must be writ-
ten and signed by you and the company.
Payment Schedule: You need to understand
what the contract says about how and when
you will be paid, including how the company
calculates the price, and when the company
promises to pay you.
Payment information may not be in the basic
contract. It is often given in a price schedule
that the contract refers to. Review these terms
before you sign. Find out if the contract al-
lows either price or payment schedule to be
changed.
Determine if your payment is due on the date
the company accepts your peanuts, and if the
contract includes interest payments for the
grower if payment is late. You want to avoid
becoming the company’s creditor, which would
likely leave you holding an unsecured debt.
Payment timing and calculations may be es-
pecially complicated in options contracts.
Because these contracts are for the option to
purchase peanuts from the government loan
program and require farmers to put their pea-
nuts under loan, farmers receive a portion of
their payment from the government and part
from the company. These should be carefully
reviewed for terms about when and how much
the grower will be paid.
Here’s an example from an option to
purchase we reviewed for this guide:
There have been some concerns that contracts
may allow for payment when the company
buys the peanuts from under loan, which may
be months later.
“The option price will be paid as follows:
$1.00 per net ton will be paid at signing of
this Option and $94.00 per net ton basis
grade will be paid at the time of inspection
of the Peanuts.”

10
Crop grading: Contracts often specify the quality standards for the peanuts, and not meeting these
standards can affect price. Standards may be caused by factors outside of the farmer’s control, such
as weather conditions during harvest. Consider what happens to your compensation if you do not
get the expected grade for you peanuts. Also, consider any possible quality benefits that the con-
tract may provide.
Right of First Refusal: Most option contracts for peanut production reviewed for this article con-
tained terms giving the shellers the right of first refusal for any crop produced beyond what was
contracted for in the option.
The following is an example of one such provision.
Right of First Refusal. Producer hereby
gives Buyer the right of first refusal with
respect to the purchase of all or any
portion of the farmers stock peanuts
produced on all Producer’s farms for the
2005 Crop Year except those peanuts
which are subject to a presently existing
contract with Buyer or another bona fide
commercial sheller of peanuts for the
2005 crop. Pursuant to this paragraph,
Producer shall not sell any peanuts to a
buyer at a price not greater and upon
terms and conditions not less favorable
than the terms and conditions offered in
writing and in good faith by such buyer
for such peanuts. The terms and condi-
tions of Producer’s offer of first refusal
to Buyer shall be in writing. Buyer shall
have a period of 72 hours in which to
accept Producer’s offer. Should Buyer
fail to accept Producer’s offer within
such time, Producer may proceed to sell
such peanuts to the other buyer on the
basis of the same price, terms and condi-
tions offered by Buyer.

11
Contract Terms continued
B. Management, Production Practices,
and Equipment Upgrades.
The peanut contracts we reviewed for this
publication are options to purchase. They
pretty much leave management and produc-
tion decisions in the hands of growers. How-
ever, as the peanut industry continues to
evolve contracts can change.
Some farmers we interviewed expressed
concern that contracting companies may
begin dictating that growers grow a certain
variety with specific production practices.
One grower reported that shellers are
dictating where growers should buy their
peanut chemicals.
Here is an example from a peanut option
contract:
Companies have legitimate needs for
equipment and other changes to realize
company objectives. Their requirements
may be company-specific or industry-
wide. The concern here is that company
requirements may increase your costs,
reducing your profit, or may tie you to
debt that reduces your ability to negoti-
ate the contract and adversely affects
your long-term financial prospects.
Once again, crop-specific expenses that
require long term financing, such as spe-
cific equipment or handling facilities,
should be evaluated very carefully with a
short term contract.
C. Delivery and Storage Requirements.
These are very important in almost all peanut
option contracts. A delivery date is of course
a key item to check. Late delivery can have
serious consequences. For example, one
option contract we reviewed states that the
buyer “... at its sole discretion may reject
delivery of the Peanuts” if the contract’s
deadline date is not met.
But delivering on time is just one element.
A delay between harvest and delivery can
cause shrinkage in the peanuts, which reduces
the farmer’s income. Contracts can require a
grower to put the crop under loan and
transport the peanuts to a storage facility
sometimes chosen by the company. With
warehouses scarce in new peanut growing
areas, transportation to existing warehouse
facilities could be costly. It is important
to think through all of the post-harvest
costs, and to be sure that you include all of the
costs that you are responsible for in your
financial calculations.
These delivery-related items require careful
thought. Before you sign, you want to be sure
not only that you can fulfill these terms, but
that complying with these and other contract
duties makes good economic sense for you.
Producer agrees not to apply or use any
chemicals not specifically approved and
labeled for use on peanuts or any chemi-
cals which Buyer from time to time noti-
fies Producer are not approved by Buyer
to be used in connection with peanuts.

12
D. Incorporation by Reference and
Entirety/Integration Clauses
Most peanut contracts refer to outside docu-
ments with specified terms that are as binding
as anything in the basic contract document
itself. Usually, the contract will have a list
of such documents.
You may see a provision like this one:
Make sure your review includes all contract
materials.
Generally, the law presumes that anything that is
not included, or referred to, in the contract, will not
be considered part of the contract.
This is tremendously important. What’s in
the contract is all that matters. Conversations
don’t matter. Promises may have been made-
-if they’re not written into the contract, they
count for nothing. Other documents are to-
tally irrelevant.
This point is so critical that most contracts
have specific clauses to underscore it. They
can be called entirety clauses, integration
clauses, or merger clauses. They can differ in
wording, but their objectives are exactly the
same: to establish the written contract as the
final and complete legal record of an agree-
ment between grower and company.
Here are a couple examples from option con-
tracts we reviewed for this guide:
Note the last sentence of the second example--
beginning with “Producer acknowledges that...”
Boiled down, this says the grower is agreeing to
the written contract and only that. You see the
company’s reason: If things go wrong after the
contract is signed, the grower can’t claim that the
company promised him or her anything that isn’t
written in the contract. [This is not to say you and
the company couldn’t make a verbal agreement to
something and then put it into writing as part of
the contract.]
E. Excuse of Performance
Contracts are strict about performance. The general
rule is that a farmer is liable for non-performance
unless the contract excuses non-performance for cer-
tain reasons. Even if a flood or tornado ruins your
crop, you can still be held responsible for fulfilling the
contract--unless your contract contains a natural-
disasterclauseofsomesort.
As you review a contract, see if it has some-
thing called a force majeure clause. This is a
clause protecting from liability growers unable
to fulfill their contracted duties due to factors
the grower couldn’t control. “Acts of God”
generally qualify, as do profound events such
as riots and war. [These clauses apply only if
the grower uses due care to try to avoid the
catastrophe. That is, if you drove a truckload
of peanuts into a riot area and rioters set fire to
your crops, you’re probably liable.]
“The terms and conditions set forth on this
reverse side of the agreement are an inte-
gral part of this agreement.”
Merger. This writing constitutes the entire
Agreement between Producer and Buyer,
terminating and superseding any prior dis-
cussions or agreements between Producer
and Buyer with respect to the subject mat-
ter hereof. Buyer and Producer agree to
execute any and all other documents nec-
essary to comply with applicable federal
law or regulations or state law or regula-
tions. Producer acknowledges that Buyers
and its agents made no representations to
induce Producer to enter into this Agree-
ment, except for such representations as
may expressly appear herein.
Entire Agreement: This Agreement super-
sedes all prior discussions and agreements
between the parties and may not be modi-
fied or amended except in writing by both
parties. The failure or delay in exercising
any right hereunder shall not constitute
any waiver of such right, and the waiver or
any breach of this Agreement shall not
constitute a waiver of any later breach of
this Agreement.

13
Here’s is an example from an agreement for
peanut production.
Note: Suppose you reach a point where you
think you won’t be able to deliver what you
contracted for. In that case, immediately
write the company and tell them. This in-
cludes natural disasters, if that has caused
your problem. Prompt written notification
can help the company adjust and curb its re-
sulting damages
F. Right of Access: Many contracts give the
company the right to go onto the farmer’s
land to inspect the peanut crop. You will
want to see if this is true of the contract you
are evaluating. You may have to search care-
fully: Right of access may be given in a sepa-
rate section under a clear title or it may fall
under another heading, such as this contract
language under “Warranties”:
Notice that this clause does not spell out the
situation required for the company to take
plant samples. In some situations in other
commodities, farmers have had problems with
companies taking samples without their
knowledge, and then being presented with
results after harvest when the farmer has no
way to take their own samples or refute the
results. Crop inspection and plant sampling
are certainly legitimate requirements from the
company, but the farmer should be careful to
match any sampling with his/her own.
G. Disputes, Termination, and Damages
and Remedies
(1). Dispute Resolution:
Most people downplay the possibility of fu-
ture disagreements when entering into a busi-
ness contract, but dispute resolution options
have become a critical issue in agricultural
contracts. The peanut contracts that we re-
viewed for this publication do not lay out a
specific process for handling disagreements.
However, in commodities with a longer his-
tory of contract-based markets - particularly
poultry and pork - many company contracts
have evolved over time to include specific
dispute resolution language that can stack the
deck against the farmer.
Acts of God, No Allocation: The Seller
shall not be excused from its obligations
set forth in this Agreement for failure to
deliver the full amount of Peanuts con-
tracted hereunder unless the actual pro-
duction of Peanuts on the farm specified
above is less than the contracted amount
because of physical loss of production re-
sulting solely from external sources such
as fire, lightning, inherent explosion,
windstorm, drought, tornado, flood, or
other acts of God. If Seller is unable to
deliver the full amount of Peanuts con-
tracted herein because of such reason, the
Seller agrees to deliver and sell to Sheller
the full amount of Peanuts actually pro-
duced from the above specified farm, and
this obligation of the Seller shall not be
subject to excuse or allocation pursuant
to Section 2-615 of the Uniform Commer-
cial Code.
Should Buyer request it, Producer agrees
to permit Buyer access to inspect Pro-
ducer’s crop during the growing season
and to take a reasonable number of plant
samples for chemical analysis.

14
When a farmer signs a contract
with a binding mandatory arbitra-
tion clause, he or she is waiving
the right to use the American
public court system to settle any
future dispute with the company.
The rules and procedures shaping
the arbitration are generally
determined by whoever writes the
contract. Arbitration can be struc-
tured to be prohibitively expensive
for the individual farmer and
is lacking the same protective
legal procedures of the public
court system.
Some alternative dispute resolution options
can be beneficial3
. For example, mediation is
a structured process that relies on a neutral
third party to help negotiate differences and is
typically very affordable. The decision relies
on voluntary implementation. Agreeing to
mediate does not eliminate either party’s
other legal options.
Dispute resolution options are an issue to fol-
low as peanut contracts evolve from year to
year. For any dispute resolution option that is
included in the contract the farmer should
seek clarification and understand the associ-
ated costs, governing procedures and whether
the decision can be appealed to a court of law.
(2). Contract termination, exercise of option
and termination of option:
Terms defining the duration of the contract
will be set out in all contracts. Some will be
explicitly titled, but others may not be as ob-
vious. Most contracts being offered today are
for one growing season.
3
For additional information on dispute resolution,
mediation, and arbitration issues in production con-
tracts see “I’ll See you In Court– or Will I?” Assessing
the Impact of Integrator Practices on Contract Poultry
Growers (December 2001), pp 4 – 123,
http://www.flaginc.org/topics/pubs/poultry/poultrypt6.
pdf
A peanut producer should know and under-
stand how the contract can be terminated and
when it can be terminated. A farmer should
know under what circumstances, including at
whose discretion, their peanut contract can be
terminated before the end date on the con-
tract.
As discussed throughout this booklet, if it
isn’t actually included in the written contract,
it should not be relied upon. This goes for
any comments a company representative or
warehouseman may make to you regarding a
contract for the next season. Unless you have
signed a contract, you should not rely on any
of those conversations since it is unlikely that
they could be enforced. You and the contract-
ing company are bound by the duration of the
contract defined in the written and signed
agreement.
In an options contract, there are different
sections of a contract, often with similar lan-
guage, that spell out conditions for the termi-
nation of the option to buy, for the termina-
tion of the contract itself, and the term or du-
ration of the contract. It is important to know
which situation terms are talking about.
Contracts use different language to talk about
the company exercising its option to buy the
peanuts. This is the point at which the com-
pany uses its option to buy, pays for the pea-
nuts and takes possession. The date the com-
pany exercises its option can affect the date
the grower gets paid, so it’s important.

15
Here are a couple examples of contract lan-
guage on exercising the option.
The following is a section of a contract outlin-
ing the term and termination of the option
agreement itself. Note that “Term and Ter-
mination” is about exercising the option,
although it’s not mentioned in the title.
(3). Damages/Remedies:
Suppose either the company or the grower
fails to carry out their contract duties. The
contract has been broken, and someone may
be owed compensation, either in money or
compensatory actions. What happens next?
This brings us to breach of contract, a
complex and technical thing best studied with
access to an attorney or experienced farm
advocate. We will give you some basics to
help you evaluate your contract in terms of
what happens when things go wrong.
Some contracts contain language stating
allowable damages for a breach of terms;
some don’t. Some states have laws governing
damages for breach of contract. The Uniform
Commercial Code may apply; it gives both
parties options in certain cases, depending on
who breached the contract.
Both parties will be able to seek recourse for a
breach of contract if that claim is made within
the applicable statute of limitations.
Companies have several options if they
believe a farmer has breached a contract. The
company may:
• Get the grower to pay back any money
already received from the company.
• Buy peanuts from someone else, and then
get the contracting farmer to pay for the
costs of the substitute goods.
• Seek to have the farmer pay damages for
failing to deliver the crop as specified by
the contract.
• The company also may try something
called “specific performance.” This means
getting the farmer to repair the breach by
doing what the contract called for. For
example, if a farmer’s own crop failed,
the company may ask that the farmer get
substitute goods of the specified quality
and deliver them to the company.
Notice of Exercise. Buyer may exercise
this Option by either (i) giving written no-
tice of its exercise to Producer either in
person, via fax or by U.S. Mail with proper
postage affixed and addressed to Producer
at the address set out above, or (ii) by re-
paying Producer’s marketing assistance
loan (MAL). If exercise is under (i), the
date and time Buyer exercises this Option
shall be deemed to be the date and time of
the notice of exercise. If exercise is under
(ii), the exercise shall be effective upon
Buyer’s repaying the MAL on Producer
behalf.
Option Payment Date: Sheller shall pay
the Seller the Option Payment on the latter
of the date that this Option has been exe-
cuted by the parties hereto or the date that
the Power of Attorney, appointing the
Sheller as attorney in fact to act for the
Seller with respect to certain FCIC, FSA
and/or CCC programs, is approved by
FSA. Upon receiving an approved Power
of Attorney from FSA, Sheller shall have no
obligation to notify the Seller of its inten-
tion to exercise or the actual exercising of
this Option.
Term and Termination.
A. Buyer may exercise this Option at
anytime during a period beginning on
the date of this Agreement and ending
on October 31, 2006.

16
The following is a specific performance pro-
vision from a current option contract.
A company may also request specific per-
formance, requiring a remedy such as the
farmer acquiring substitute goods to fulfill
their obligation under the contract.3
It is con-
ceivable that a farmer could buy the peanuts
elsewhere to deliver the required poundage.
On the farmer’s side, a couple of main options
exist when it’s the company that has breached
the contract.
• The farmer may sue for the full price of the
goods under the contract.
• The farmer can also sell the peanuts to an-
other company and, if the price is lower
than the contract price, seek to recover the
difference from the original contracting
company. Note: This second option is a
long shot. These days, peanut companies
are all contracting to fill their needs; so
they are unlikely to need peanuts offered
mid-season or later.
3 There may be a potential conflict with a specific
performance remedy if the contract has conflicting
language stating the contracting company will
only accept peanuts produced on specific land -
the contracting farmer’s land.
Specific Performance. Producer and
Buyer agree that they have executed and
delivered this Agreement in contemplation
of the limited source or market of peanuts.
Producer acknowledges that Buyer has
entered or will enter into commitments
with other parties in reliance upon Pro-
ducer’s performance hereunder. In rec-
ognition of the foregoing and the unique
characteristics and sources under this
Agreement or otherwise, the remedy of
specific performance of Producer’s obli-
gations under this Agreement, and breach
or threatened breach of this Agreement
shall entitle Buyer to a temporary or per-
manent restraining order or injunction.

17
6. Conclusion
In the short term it is reasonable to assume the peanut production contracts will
look similar to the contracts that are being presented today. However, the
poultry and hog production industries teach us that in the long term the con-
tracts will change to give companies tremendous control over production, man-
agement, and the future of family farming businesses. It is important for every
farmer who is considering a peanut contract to follow the checklist attached to
this article to ensure that they are prepared for the duties and risks associated
with a proposed contract.

1. RESOURCES AND WHERE TO GET MORE INFORMATION
For more information on a range of farming issues:
RAFI-USA
Rural Advancement Foundation International – USA
PO Box 640
Pittsboro, NC 27312
Phone: 919-542-1396
www.rafiusa.org
Farmers’ Legal Action Group, Inc.
360 North Robert Street, Suite 500
St. Paul, MN 55101
Phone: 651-223-5400
lawyers@flaginc.org
www.flaginc.org
For more information on production contracts and contracts generally:
A Farmer’s Legal Guide to Production Contracts, Neil D. Hamilton, Top Producer, Jan.
1995
Livestock Production Contracts, Commodity Marketing Agreements, and Forward Con-
tracts: Legal Risks and Protections for Family Farmers, Jill E. Krueger, March 12,
2004 available at www.flaginc.org
Agricultural Production Contracts: Drafting Considerations, Christopher R. Kelley, 18
Hamline L. Rev. 397 (1995)
Assessing the Impact of Integrator Practices on Contract Poultry Growers, Farmers’
Legal Action Group and others, September 2001, available at
www.flaginc.org/pubs/poultry.htm
Grain Production Contract Checklist, Livestock Production Contract Checklist, Iowa
Attorney General, available at
www.state.ia.us/government/ag/working_for_farmers/contracts.html. (sample contracts
also available)
Contracting in Agriculture: Making the Right Decision, USDA, available at
www.ams.usda.gov/contracting/contracting.htm
20

2. RELEVANT GOVERNING LAWS
Peanut products and production are regulated in many different ways, from local environmental per-
mitting of production, to monitoring pesticide residue under the Federal Insecticide, Fungicide, and
Rodenticide Act, to labeling the product for consumers. This booklet was not intended to go into the
details of all the relevant governing laws for peanut production. Rather, it highlights many state and
federal laws and regulations that could affect contracting for peanut production. With that narrow fo-
cus and context in mind, a few additional topics need to be highlighted because of their relevancy to
the operation of your peanut production contract. Below is a list, although not exhaustive, of state and
federal laws and regulations which may be relevant to the operation of your peanut marketing contract.
A. Uniform Commercial Code (UCC)
Contracts are generally governed by common law; also know as judge-made law or case law, applica-
ble in a particular jurisdiction usually a particular state. This would be true except to the extent en-
acted legislation has codified, changed, or added to it. Contracts for the “sale of goods,” moveable
tangible items, are governed by the Uniform Commercial Code, or UCC. The UCC was developed to
do exactly what it says, provide uniformity to commercial transactions. Most other contracts are gov-
erned by states provision which can vary widely and the interstate nature of commercial transactions
warranted uniformity. Article Two of the UCC applies to contracts for the sale of goods involving
$500 or more. This would be generally applicable to most peanut contracts. The UCC is probably
most relevant, for purposes of this booklet, when discussing a breach of contract and damages related
to that breach. An attorney admitted to practice in your state can provide more detailed information on
how your state’s UCC impacts your contract.
B. Producer Protection Act and Similar State Protections
The Producer Protection Act was a model state statue proposed by 17 state Attorneys General in 2000
as a means to assist agricultural contract producers and provide uniform protections for producers.4
The proposed legislation was a result of the experiences of farmers, attorneys, and legislators in the
broiler industry. In response to that situation, the state model protections included requirements for
disclosure, transparency, and readability as well as economic liability limits. The proposed law did
not, however, equalize bargaining power, guarantee a fair price, or mandate that contracting companies
provide different contract options to their producers. A few states have provisions similar to or based
on the Producer Protection Act many of those have been highlighted throughout this article from Min-
nesota, Illinois, North Carolina, Kansas, and Georgia. Illinois has since enacted an Agricultural Pro-
duction Contract Code for the farmers of Illinois.5
The Illinois law is a great example of producer pro-
tections for farmers involved in a variety of agricultural contracts. It is mentioned throughout this arti-
cle. Farmers working to have state laws governing agricultural contract issues should take a look at the
Illinois law.
C. Agricultural Fair Practices Act (AFPA)
Many farmers have a fear of retaliation from a contracting company if they join an organization advo-
cating for the interests of peanut farmers. The right for a farmer to form or join an association for ne-
gotiating contract terms is protected under the federal Agricultural Fair Practice Act, 7 USC §§2301-
2306. This Act forbids unfair interference by contractors into producers associations, but it does not
require companies to negotiate with such associations.
4 The model language of the Act is available at
http://www.state.ia.us/government/ag/agcontractingexplanation.htm.
5 Illinois Public Act 93-0522, codified at § 505 ILCS 17/1-99.
21

3. FARMER CHECKLIST
Before signing a contract…
Be Prepared. Contract offers often allow little time for consideration before signing. It is best
to know your situation and what you need to make producing peanuts profitable BEFORE you
expect a contract offer.
Read the whole contract. This is the time to use as much information as possible so you can
make informed decisions about your future. The starting point for all your decisions should be
the actual contract AS WRITTEN.
Understand the terms of the contract. You need to understand the terms of the ENTIRE con-
tract, because the contract, IN ITS ENTIRETY, will govern all aspects of your relationship
with the company. The contracting company wrote the contract to protect ITS interests. You
need to protect yours.
Get the help you need. If you have any difficulty understanding the terms of the contract, you
should consult an attorney, or someone who has a great deal of knowledge or experience with
similar contracts such as an experienced member of your community, a farm advocate, or a
growers association.
Identify your obligations and risks under the contract. In exchange for a contract price for
your peanuts, a farmer committed under a contract faces significant risks and obligations.
Some may be obvious, others may not, but ALL must be fulfilled. Determine if you can meet
your production obligations under the contract including the required inputs, equipment and fa-
cilities, quality, and harvesting requirements. Know what is expected of you and how your
costs and income can be affected. Analyzing risk is an area where expert help can be vital.
Determine the contract’s economic impact. Figure up your likely production costs, income,
and variables. Don’t calculate only the best-case scenario with the highest profit. Run the
numbers on a range of outcomes. What would bad weather, plant disease, or an outright disas-
ter do to your net return? Calculate the effect of increased production costs or changes in mar-
ket prices. Analyze the bottom-line impact of the way your crop is graded. Look for contract
language about penalties if you don’t deliver the quality products the contract specifies at the
right time.
Keep a written record of everything. Write down all your dealings with the contracting com-
pany. This is important. Make sure that any changes to the contract are put into writing and
signed and dated by both parties. In some cases, this is required by law--in any case it’s good
business. Also for your own protection, keep a written record of your contract performance,
such things as planting, harvesting, fertilizing, and delivery.
Know your payment and delivery details. Know how much you will be paid for your pea-
nuts. Just as important, know when you’ll get paid and by whom. Know when, where and how
you will be required to deliver the peanuts, and if there are additional costs involved.
Know how disputes are resolved. Understand what happens if things go wrong. Review the
contract to see what it says about grading disputes in particular and about general disputes.
Know how the contract can be terminated. Know when and how the contract can be termi-
nated by you and/or the contracting company.
22

“Farmers’ Guide to Peanut Contracts”
Evaluation Form
We are always interested in hearing from readers. Please fill out the form below and send it to:
RAFI-USA, PO Box 640, Pittsboro, NC 27312
1. How did you use this guide? Check any that apply:
as general background on peanut contracts and the industry
as a tool you referenced in the process of making a decision related to entering a peanut (or
other) contract
as a tool you referenced for more information on your rights as a contract peanut grower
other: __________________________________________________________________
2. What information did you find the most helpful or interesting?
3.
example, are you going to talk to more farmers or revise your cash flow projections?)
4. After reading “Farmers’ Guide to Peanut Contracts” do you have additional questions or
types of information you wish we had included?
Name ______________________________________________________________
Address ____________________________________________________________
City _________________________ State _______________ Zip_______________
Phone ___________________________ Email______________________________
Organization / Business ________________________________________________
Thank You!
23
If you read “Farmers’ Guide to Peanut Contracts” because you are considering getting
into the contract peanut business or other contract-based agricultural enterprise, has
the guide caused you to do anything differently than you were previously planning?
(For

25
PUBLISHED BY
RURAL ADVANCEMENT FOUNDATION INTERNATIONAL - USA
P.O. BOX 640
274 Pittsboro Elementary School Road
Pittsboro, NC 27312
TEL: 919-542-1396
FAX: 919-542-0069
www.rafiusa.org
Text © 2007 Rural Advancement Foundation International—USA
Anyone has permission to use this material. We appreciate your crediting
RAFI-USA if you reprint any portion of this document.

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