When pork producers enter a contract to produce hogs, they can be very vulnerable if the owner runs into financial problems. Iowa law provides contract growers with a commodity production contract lien and contract growers in Iowa should consider filing this lien to protect themselves for what is owed them under the contract.
Protecting yourself from risk is increasingly important in times of volatile commodity prices. “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,” writes Tom Miller, Iowa attorney general. “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.”
“If you’re a contract grower, I urge you to file liens within 45 days of receiving each group of hogs,” says Eldon McAfee, attorney, Beving, Swanson and Forrest, Des Moines. According to McAfee, a Uniform Commercial Code Form 1 (UCC1) should be filed to protect your interests in case the owner of the hogs is unable to pay you for your services.
The UCC1 document, which is actually a notice and not an agreement, is typically filed with the office of the Secretary of State in the state where the owner of the hogs is located.
McAfee says filing a lien does not imply that you do not trust the owner of the hogs but rather it is merely a routine business procedure.
McAfee also urges contract growers to terminate the UCC-1 once they have been paid for their services for each group of pigs. Finally, McAfee suggests that the owner file a UCC-1 “protective filing” to give notice to potential creditors of the contract grower that the pigs in the buildings belong to the owner, not the contract grower.
For more information on liens, click here.