February 28, 2003

USDA has published a study showing that 62,300 U.S. farms used more than 82,100 corn, soybean or wheat marketing contracts during 2001. The information comes from the Agricultural Resource Management Study, conducted by USDA's National Agricultural Statistics Service (NASS) during late winter and spring of last year.

The number of contracts by crop shows more than 44,700 farms with corn contracts, almost 27,700 farms with soybean contracts, and nearly 9,700 farms with wheat contracts.

For the 2001 crop year, 10.4% of the total corn production, 8.6% of the soybeans, and 4.8% of the wheat was sold through marketing contracts. When corn and soybeans are combined, 10% of the total production was sold through marketing contracts.

This compares to an earlier report from USDA's Economic Research Service showing 11% of the combined 1999 corn and soybean crops sold through marketing contracts. Wheat contracts totaled 6% of the 1999 crop production.

The weighted average price received by farmers for contracted corn was $2.14 per bushel, compared to the NASS market year average price (MYA) of $1.97 for the 2001 crop. The weighted average price for contracted soybeans was $4.63 per bushel, compared to the MYA of $4.38, while wheat had a contract price of $2.98, compared to the MYA of $2.78 per bushel.

Corn farms that sold identity-preserved varieties received $2.19 per bushel, and reported receiving an average 24 cents premium above Number 2 yellow corn. The average contract-specified premium, above Number 2 yellow corn, was 22 cents.

Cooperatives and elevators, combined, were by far the primary contractor group. Respectively, 69%, 64%, and 71% of contracts for corn, soybeans and wheat were held by cooperatives or elevators. The contractor group representing processors, seed companies, and feed mills handled contracts for another 20%, 30%, and 18% of corn, soybeans, and wheat, respectively.

While 16%and 18%of the corn and soybean contracts, respectively, carried confidentiality clauses, only 8% of the wheat contracts did so. The percent of farms with two or more contracts was roughly the same for corn and soybeans, at 12% and 14%, while the percent of wheat farms with two or more contracts was only 7%. The number of contracts with no specified length was roughly the same for all three crops, ranging from 15%-19% all contracts. The percent of corn contracts with penalty clauses for reduced production was 23% compared to 15% and 13% respectively for soybeans and wheat.

Although the percent of contracts delivered off the farm is comparable between crops, ranging between 79% and 85%, the distances traveled for contract delivery versus non-contract delivery are significantly different. The mean miles for contract production delivered off the farm is almost twice the distance of available, non-contract delivery for corn and soybeans, and more than twice the distance for wheat.

Sen. Charles Grassley (R-IA), who requested the study, said he wanted NASS to study the nature, extent, and geographic dispersion of contract grain and oilseed farming.

"I don't intend to allow the corn and soybean markets to be consumed by the multi-nationals the same way vertical integration has happened with the large meat packers. We aren't going to play catch-up through regulation on Iowa's crops like we have to with cattle and pork production," Grassley said. "Agriculture can't afford to have the same thing happen to our corn and soybean producers.

The study is available on the Internet at http://usda.mannlib.cornell.edu/reports/nassr/field/pgs-bb/special-reports/armsan03.txt.