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Sharing iron arrangements

Agriculture.com Staff 07/07/2010 @ 9:10am

Options abound for sharing, but there is no alternative to clear understanding

Sharing machinery offers some enticing incentives, like cutting per-acre machinery costs by 20% to 40%. But you had better have a clear understanding of how and when machinery will be used, urges Erlin Weness of the University of Minnesota.

If you decide to proceed, put the agreement in writing. Weness adds, "The more details you can agree on and put in writing before going ahead, the better your chance for a successful business venture," he explains. "Any agreement is possible, but it's important to determine up front who will use the machine first and how it will be shared through the season. You both must have the temperament to negotiate and work through these decisions."

It's more common to share machinery with someone close to minimize transportation costs. Regardless of location, you need to thoroughly discuss any machine-sharing arrangement before going ahead, says Weness.

Another key to success is to make an agreement as to how and when a machine is serviced, maintained and fueled. "Establish some rules of conduct up front," Weness says. Do you want the machine fueled, clean and in good repair when you receive it from your partner? Or is it okay to get it with mud on the tires, weeds hanging from it and with a vital part dragging on the ground. How about half eaten sandwiches, pop cans and junk in the cab?

"When shopping for a potential joint owner, look for someone who has similar habits regarding machinery care and maintenance," Weness says. "You may also want to work with someone who has a similar work ethic and personality. If you and your partner have conflicting personalities, expect a short business relationship."

Potential arrangements outlined by Weness include:

Sole ownership with a custom agreement. One person owns the machine. He/she is responsible for all the ownership costs of the machine. He/she signs a custom farming agreement with another farmer for a set fee. The fee may or may not include fuel and may or may not include labor. This type of ownership keeps everything very simple. Everyone involved in the agreement knows what is expected of him or her. Farmer A may own the combine and have an agreement with B to combine his corn for $20.00 per acre. Farmer B may have the planter and cultivator and agree to custom plant and cultivate for Farmer A. They may share labor and work together on the farm or all labor could be provided by the owner of the machine.

Machinery can be purchased jointly by two or more farmers who wish to work together. If the machine were purchased 50 Ð50, each party would be responsible for making 1Ú2 of the interest and principal payments. A working bank account could be established to handle transactions regarding jointly held machinery. A formal partnership could also be used to handle jointly held machinery. Each person using the machine would pay an agreed amount per acre into the account. This fee would be used to pay for repairs, insurance and housing the machine. If one of the owning parties houses the machine, they would be compensated for it out of the joint account. Each party would be responsible for the fuel used on his farm. Seldom will each owning farmer have the same number of acres. To make things equal, the farmer having more acres would pay full custom rates on the excess acres. For example: A has 500 acres and B has 600 acres. B would pay full custom rate of $23 per acre to the joint account on the extra 100 acres, while each would pay $5.00 per acre for their first 500 acres. If the joint account falls short or exceeds amounts needed for costs, added assessments or refunds could be made.

Machinery can be jointly purchased in the same percentage as acres farmed. If A has 750 acres and B has 250 acres, a 75%-25% split of all ownership and operational costs could be set up. Ownership adjustments will be required if either partner changes their acreage, making this a cumbersome method of ownership.

Other alternatives can be worked out where one party has the machine until the dryer and wagons are full. Then the other partner takes the machine until his or her facilities are full. "Any type of agreement is possible," Weness says. A key factor is whether you and your partner have the temperament to negotiate and work through day-to-day decisions dictated by weather delays and other down time.

When purchasing machinery together, typically the titling would be as tenants-in-common. Tenants-in-common gives you an undivided interest in the property that will pass to your heirs at your death. In the case of a "big ticket" item, it also would be possible for the co-owners to carry cross life insurance on each other for the purpose of purchasing the machine from the deceased persons heirs. In the case of a parent/child joint ownership, a joint tenancy ownership may work. In joint tenancy ownership, the survivor gets the machine at the time of the partner's death. It is important to specify the type of ownership on the purchase agreement papers.

More detailed information is available online in a publication by Weness, "Sharing Farm Machinery."

Download a PDF file of the Machinery Digest section from the April 2004 issue of Successful Farming magazine.

Options abound for sharing, but there is no alternative to clear understanding

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