If the producer receives a return from a contract that exceeds the additional cash costs, then this surplus is a return to the idle resources. All parties need to be aware that older facilities will eventually become obsolete, and there may come a point in time when the contract is not profitable. There is no free lunch involved with contract production. Each advantage requires that someone bear a cost. Below is a general discussion of some disadvantages of contracting.
Contracts typically reduce the producer's involvement in management decisions.
In order to fill a producer's buildings, the contractor may find it necessary to co-mingle groups of hogs from several sources. Unless the contract specifies otherwise, the contractor has discretion to either leave the facilities idle or not fill them to capacity. Producers who contract generally have more stable incomes but at a lower level. This is like paying an insurance premium to avoid bad outcomes. As a result, many contracts do not provide sufficient payments to build substantial equity over time.