## Facts

- A grain cooperative and elevator entered into four hedge-to-arrive (HTA) contracts with a farm for future delivery of specified quantities of corn.
- The HTAs tied pricing to Chicago Board of Trade futures pricing minus a basis; the basis was not fixed when the contracts were formed.
- The contracts permitted the farm to “roll” delivery to later futures months, with gains or losses from futures spreads added to the pricing burden.
- The farm repeatedly rolled delivery rather than deliver, and adverse market “inverses” increased the farm’s contract exposure.
- Amid regulatory and legal controversy surrounding HTAs and concerns about the farm’s performance, the cooperative sent a written UCC demand for adequate assurance of performance, requesting confirmation of delivery and acknowledgement that the contracts were valid and enforceable.
- The farm refused to provide the requested assurances.
- The cooperative liquidated its related futures hedge positions and treated the refusal as a breach/repudiation; it then sued for damages tied to cover and hedging losses.
- A jury found for the cooperative and awarded approximately $118,125 in damages; the farm appealed.

## Issues

1. Whether the HTA agreements were illegal off-exchange futures contracts under the Commodity Exchange Act (CEA) or enforceable “cash forward” contracts exempt from the CEA.
2. Whether the cooperative had reasonable grounds for insecurity and made a commercially reasonable demand for adequate assurance under UCC § 2-609.
3. Whether the cooperative’s demand for assurances constituted an anticipatory repudiation.
4. Whether the farm preserved a parol-evidence challenge to testimony about oral discussions that allegedly clarified or softened the written demand.

## Decision

- The Iowa Supreme Court affirmed the judgment for the cooperative.
- The court held the HTA contracts fell within the CEA’s cash-forward (forward contract) exemption because the parties contemplated actual, physical delivery of corn.
- The court upheld the jury’s finding that the cooperative had reasonable grounds for insecurity and that its demand for adequate assurance was commercially reasonable under UCC § 2-609.
- The court rejected the claim that the cooperative anticipatorily repudiated; the farm’s refusal to provide adequate assurance supported a finding that the farm repudiated/breached.
- The court declined to reverse on parol-evidence grounds because the farm did not properly preserve the evidentiary objection for appeal.

## Legal Principles

- A commodity agreement is generally treated as a CEA-exempt forward (“cash forward”) contract when the parties have a legitimate expectation of physical delivery, even if the seller’s elevator uses exchange-traded futures to hedge its risk.
- Contract features such as rolling delivery months and delayed basis-setting may introduce speculative elements but do not necessarily convert a delivery contract into an illegal off-exchange futures contract when delivery remains contemplated.
- Under UCC § 2-609, a party with reasonable grounds for insecurity may demand adequate assurance and may suspend performance when commercially reasonable; failure to provide adequate assurance within a reasonable time may constitute repudiation.
- A demand for adequate assurance may request more than the contract’s literal terms so long as, in context and under commercial standards, the requested assurances are commercially reasonable.
- A demand for assurances is not an anticipatory repudiation unless it effectively amounts to a refusal to perform absent an improper modification.
- Appellate review of alleged parol-evidence errors requires timely and proper preservation of objections at trial.

## Conclusion

The court enforced HTA grain contracts as forward contracts exempt from the CEA where the parties expected physical delivery, and it upheld a robust UCC § 2-609 demand for adequate assurance in a volatile commodity market, treating the farmer’s refusal to assure performance as repudiation rather than the elevator’s demand as repudiation.


Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454 (Iowa 2000)