It is estimated that 12-14 percent of all barrows and gilts slaughtered in the U.S. are grown under contract. Gains and Losses From Production Contracts Production contracts can be developed which are favourable to all parties involved- the producer, feed dealer, lender, as well as the contractor.
Production contracts offer several advantages to the contractor.
While production contracts reduce price risks for producers, they can also reduce profit potential over time. This should be expected whenever risk reduction is achieved. The advantage of the contract is to reduce producer losses during low price periods. But it also cuts profit potential during high price periods. Profit levels need to be compared to investment levels.