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Sharing the Cost of Machinery

08/15/2014 @ 11:37am

Partnering in equipment ownership has helped cousins Todd and Tim Dunphy increase efficiencies of their farming operations.

Between the two of them, the Dunphys farm 1,700 acres near Creston, Iowa. They also manage 2,000 acres of pasture, and each owns a herd of beef cows.

Splitting ownership down the middle, they maintain a full line of equipment needed to grow and harvest corn, soybeans, and hay. They also share ownership of machinery needed to feed cattle.

After co-owning equipment for 15 years, the cousins have found that spreading labor and equipment costs across two farming enterprises has advantages.

“We’re able to maximize our critical use of time by keeping a line of machinery sized to fit our agronomical needs,” says Todd. “Purchasing a second planter, for instance, lets the two of us cover more acres by planting at the same time.”

A similar rationale supported the Dunphys’ decision to purchase in partnership a vertical mixer wagon. The new piece of equipment permits the blending of a more cost-effective ration for backgrounding calves, but a single operation could not justify the machine’s purchase price.

“If I were going to purchase a mixer wagon alone, I would have to be running a 270-head herd of cattle,” says Todd. “I don’t have the wherewithal to handle that many cattle by myself. I’d have to hire an employee, and I don’t want to deal with employee-related issues.”

On all equipment, the partners split 50/50 the repair and maintenance costs. The value of equipment trade-ins is shared 50/50, as well.

To ensure a field-use split that matches the 50/50 sharing of purchase price and repair and maintenance costs, they use a per-acre cash rent agreement to even out land shares. For instance, for the farms owned by Todd, Tim pays Todd cash rent for half the land.

When renting from other landlords, the Dunphys simply split the cash rent down the middle.

After sharing land costs in a 50/50 split, they also share all crop inputs in the same proportion, along with all crop revenues.

They began owning equipment in partnership after Tim moved back home and began taking over some of the farming responsibilities of his family’s operation. Ten years earlier, Todd made a similar move, returning home to join his own family’s operation.

Because of his head start in farming, Todd owned equipment while Tim did not when the two started working together. The partnership was launched when Tim was able to buy half of the equipment Todd owned. Purchases made after that point were made on a 50/50 basis.

The partners’ farming enterprises expanded as Todd’s father began transitioning toward retirement.

“The process started when Tim and I bought Dad’s first-calf heifers and a few pieces of machinery,” Todd says. “We purchased more equipment over the next four years, and we took over his pastureland one pasture at a time over a period of seven years.”

Every day, the cousins weigh the pros and cons of upgrading certain pieces of equipment or of purchasing additional implements.

“We look at the possible purchase of every piece of equipment as a business decision that must stand on its own merit and make sense financially,” says Todd.

Economists at Iowa State University (ISU) evaluated case studies of farmers sharing or owning equipment with other farmers. The studies showed that labor was a motivating factor.

“Sharing a combine, for instance, was a way to get extra help. Getting the help was more valuable to some farmers than the cost savings resulting from sharing the machinery,” says Georgeanne Artz, an ISU economist.

The case studies revealed that farmers have “different approaches to sharing.” However, common goals motivate the sharing arrangements.

  • Help younger farmers access equipment in cost-effective ways. “In one instance, a young person wanted to start farming, and he was trading labor to other farmers in exchange for use of machinery,” says Artz.

  • Help younger farmers work into an existing operation and begin building equity. Leasing-to-buy equipment is one means of doing this.

  • Provide older farmers with a source of labor. “We found this to be especially important in livestock operations,” says Artz.

  • Enable farmers to use best talents. “Sometimes, sharing equipment lets people do the things they love and do best,” she says. “In one instance, we found two farmers working together. One was a mechanic by training, and he took care of the equipment. One was equipped for and was skilled at hauling grain, and he contributed this work to the partnership.”

When the right partners find each other, sharing equipment can give flexibility and a sense of security. 

“Some farmers told us that they considered themselves better off working with a partner than working without one,” says Artz.

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