Production and marketing contracts govern 36 percent of the value of U.S. agricultural production, up from 12 percent in 1969. Contracts are now the primary method of handling sales of many livestock commodities, including milk, hogs, and broilers, and of major crops such as sugar beets, fruit, and processing tomatoes. Use of contracts is closely related to farm size; farms with $1 million or more in sales have nearly half their production under contract. For producers, contracting can reduce income risks of price and production variability, ensure market access, and provide higher returns for differentiated farm products. For processors and other buyers, vertical coordination through contracting is a way to ensure the flow of products and to obtain differentiated products, ensure traceability for health concerns, and guarantee certain methods of production. The traditional spot marketthough it still governs nearly 60 percent of the value of agricultural production-has difficulty providing accurate price signals for products geared to new consumer demands (such as produce raised and certified as organic or identity-preserved crops modified for special attributes). We are likely to see a continuing shift to more explicit forms of vertical coordination, through contracts and processor ownership, as a means to ensure more consistent product quantity and quality.

The 1996 Farm Act and the 1994 Crop Insurance Reform Act are recent examples of policy changes that have increased risks for U.S. farmers. New products are emerging to help farmers manage risks. This article examines some of the policy changes, farmer responses, and new risk-sharing products. The focus turns to the new revenue insurance products and their potential in the South. While there are reasons to believe revenue insurance should be attractive in the South, any revenue products that use existing crop insurance rates will face difficulties since poor actuarial performance in the South has resulted in relatively high rates.

Production and marketing contracts govern 36 percent of the value of U.S. agricultural production, up from 12 percent in 1969. Contracts are now the primary method of handling sales of many livestock commodities, including milk, hogs, and broilers, and of major crops such as sugar beets, fruit, and processing tomatoes. Use of contracts is closely related to farm size; farms with $1 million or more in sales have nearly half their production under contract. For producers, contracting can reduce income risks of price and production variability, ensure market access, and provide higher returns for differentiated farm products. For processors and other buyers, vertical coordination through contracting is a way to ensure the flow of products and to obtain differentiated products, ensure traceability for health concerns, and guarantee certain methods of production. The traditional spot marketthough it still governs nearly 60 percent of the value of agricultural production-has difficulty providing accurate price signals for products geared to new consumer demands (such as produce raised and certified as organic or identity-preserved crops modified for special attributes). We are likely to see a continuing shift to more explicit forms of vertical coordination, through contracts and processor ownership, as a means to ensure more consistent product quantity and quality.

The livestock industry uses information on meat prices at different stages in the marketing system to make production decisions. When grocery stores began using electronic scanners to capture prices paid for meat, it was assumed that the livestock industry could capitalize on having these point-of-sale data available as a measure of the value of its products. This report compares scanner price data with publicly available data collected by the U.S. Department of Labor's Bureau of Labor Statistics (BLS). Of the two data types, scanner data provide more information about retail meat markets, including a wider variety of meat-cut prices, multiple measures of an average price, the volume of sales, and the relative importance of discounted prices. The scanner data sample, however, is not statistically drawn, and complicated processing requirements delay its release, which makes scanner data less useful than BLS data for analyzing current market conditions.

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