Farmers across the country are having to look at the “legal fine print” on contracts they previously struck with meat processors, elevators and ethanol plants that have been shut down or partially closed due to the COVID-19 pandemic.
Some packers and grain outlets have invoked the force majeure clause in their contracts as they are unable to receive and process livestock or grain and that leaves farmers in a real bind.
Attorney Todd Wilkinson with Wilkinson and Schumacher Law in DeSmet, S.D., is also a cattle producer. He says most contracts have Act of God provisions included.
“Most every contract with a packer or a processing plant is going to have a force majeure clause in it,” he says.
So far, Wilkinson had not heard of any beef packers exercising on that contract provision but said it may be a different story for pork producers.
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“On the beef side right now, the plants are not, to our knowledge, exercising the force majeure clause to cancel the contract,” he says. "Could they? Yeah, they probably can because if this (the COVID-19 pandemic) isn’t a classic force majeure situation, I don’t know what is.”
One cattle producer that has been impacted is Todd Hanten of Goodwin, S.D. He had contracts with Tyson in Dakota City, Neb., for half of the production in his farmer feedlot, and not all of those contracts are being honored.
“Some cattle contracts that I had have been canceled,” he says.
Hanten says that has been adding to the stress of farming this spring.
“They have told me that they are going to work with me, but there is no time frame on when I will be able to deliver them. Not knowing when I can deliver them and even with some of these force majeure contracts, the worry that I won’t be able to deliver them that they will cancel the contracts is very tough," he says.
Hanten says he has gotten his lawyer involved and he is looking at both the livestock and grain contracts he has for his farm.
“Some of my contracts have the force majeure clause, some do not, and even the one that is canceled right now does not have that,” he says.
However, this has never happened on Hanten’s operation before.
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“We’ve never not delivered on a contract, and they’ve never not taken on a contract, so I just hope that is what happens here too,” he says.
According to Wilkinson, in a true force majeure situation, it lets both parties out of the agreement, but that is definitely not a benefit for the producer with processing plants shutting down.
“So, the packer gets out of their contract, the producer gets out of their contract, but we all know who that affects. That’s going to affect the producer, because the producer needs the shackle space,” he says.
He says in that situation, the producer has no legal leverage in the contract to be able to deliver livestock, and so the producer is absorbing all the risk.
“So, ultimately who stands the burden of that? Yeah, the producer,” he says.
Some of the packers also have been trying to pull some of the heavier weight cattle forward, which Wilkinson says is a real disadvantage for producers.
“You know that doesn’t always get treated identically from producer to producer,” he says.
He says again the producer has no control over that situation and it can be frustrating if a cattle producer has livestock ready to go to market and another producer is given the opportunity to haul in cattle that are heavier.
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Hanten says in his case, the packer also bought some negotiated cattle in the market cheaper than those he had contracted, and those were harvested before his contracted cattle. He says the packer has been trying to work with him, however, to get those cattle scheduled for harvest.
Pork producers in the region have faced even more plant closures, and there have been contracts in which processors exercised force majeure. Lake Preston hog producer Shane Odegaard says they sell hogs to Smithfield Foods in Sioux Falls, S.D., which closed on April 4 and only partially reopened May 4. He says they did not have a contract with Smithfield, which puts them at risk.
“In our operation, we really don’t have a written contract, but we have a marketing agreement, and of course there’s kind of an Act of God clause there that says that if something happens the plant can’t operate, we’re kind of left out,” he says.
However, he says their hog buyer had been helping them move market-ready hogs to other plants like the Crete, Neb., facility, and the hope now is they can deliver to Sioux Falls again soon.
Packing capacity in both the cattle and hog industry has been, on average, down about 40% due to COVID-19 related illness among workers that has forced plant closures or a slow down in chain speed. This is an unprecedented situation and has left many farmers scrutinizing their contracts. It is also making them question their future. Hanten says even though he has feed in storage, he is uncertain about his next step.
"I’ve got a pen of cattle to fill again, and I don’t know for the first time in 38 years if I can or should fill it up or not,” he says.
