Six miles separate Paul Taylor from his machinery-sharing partners Paul and Mike Schweitzer.
Nearly 1,600 miles separate Nathan Riggers from his equipment cohorts. Yet, whether working with a neighborhood farmer or a producer hundreds of miles away, machinery-sharing arrangements offer a variety of benefits when the right combination of producers join forces.
The proximity of the Taylor and Schweitzer farms located near Esmond, Ill., allows them to integrate much of their machinery line.
They started on a small scale when Taylor, who relied on a custom harvester, bought half of Schweitzer's John Deere 9400 combine.
The neighbors now operate Heritage Ridge Farms LLC, which basically serves as a machinery leasing entity for the line of equipment they jointly own. Their lineup includes a combine, three tractors (they plan to downsize to two), a semi tractor, grain truck and an assortment of other equipment. The LLC makes the combine payments, pays the electricity bill and vehicle insurance, buys oil and grease, etc.
The two farms do have some separate equipment, but over time they own "less and less of the important stuff" individually, says Taylor. "As we trade things, we're going more to the joint stuff."
Initially, they tracked the hours on each piece of machinery to make sure everything was divided fairly. Those efforts dwindled over time, particularly because their farms are similar in size, so the time spent on each is about equal. "It was easy to quit by omission rather than by design," Taylor says.
But now that Schweitzer's son Mike has a partnership in the machinery-sharing LLC, "I think we are going back to more recordkeeping. I think that's a good thing," Taylor explains. He expects tracking to be easier now that they log information into their real-time kinematic system.
In addition, they will log hours worked and other information on paper. "We are going to try and be more diligent on that," says Taylor. The tracking will help them determine how much rent to pay the LLC for use of the equipment.
Schweitzer adds machinery sharing brings another benefit. "It's really helped us maintain a better line of machinery than we would on our own," especially when it comes to precision farming equipment such as GPS and autosteer, says Schweitzer. "With all of us together, it's affordable."
Their arrangement also allows them to share labor. This is one of the real benefits of the alliance, Taylor says. The trio doesn't have a firm and fast work schedule, he adds. "It's really flexible."
Lower combine costs. Nathan Riggers' sharing group prefers to stick to combines. The expanse between the four farms involved in his sharing arrangement lets them swap equipment since their harvest seasons don't overlap. One farm is in Idaho, another is in Nebraska and two are in Iowa. A fifth farm in Oregon leases one of the group's combines.
The group of farmers became interested in sharing equipment while attending the same meeting. During a casual conversation about harvesting, they realized their seasons didn't match.
Therefore, Riggers explains, "It was a short leap of logic" to consider sharing combines and thereby reducing costs.
Combines are the only practical machines to share, says Riggers, who grows crops, including winter wheat and spring canola, in Nezperce, Idaho. Planting seasons overlap in the spring so tractor sharing is not an option, and shipping lower-value equipment doesn't make financial sense.
The cost benefits of sharing depend on an individual's farm, Riggers says. Owning and operating machinery on a corn and soybean farm account for anywhere from 20 to 40% of the annual per-acre production cost, depending on the estimate.
But spreading the machinery over more acres lowers the cost of operation. The larger the dollar value of the asset, the more acres over which it needs to be spread. The fixed cost of the combine pays substantially more than the variable cost of freight, says Riggers. "It wouldn't pay to ship grain carts," he explains, because the fixed cost compared to the freight would be low.
It remains to be seen how increasing fuel prices may affect the economic viability of long-distance sharing arrangements.
A routine. Sharing three combines between five operations may sound a bit tricky, but each combine has a set route it travels each year, which keeps matters simple.
All three combines are shipped from the Midwest to the Riggers' Idaho operation. Riggers and his brother Steve make do with two of the combines on their farm at the beginning of harvest. The LLC that owns the combines leases a third combine to a wheat farm in Oregon where it is used during July and the first few weeks of August. This combine is then shipped back to Idaho to wrap up Riggers' harvest that's already under way.
The three combines then go back to the Midwest in mid-September for corn and soybean harvest. Combine one travels the Oregon-Idaho-Iowa route, combine two travels between Idaho and Nebraska only, and combine three shuttles between Idaho and Iowa.
Their arrangement also has "spilled over into informal labor sharing," Riggers says. "The Midwesterners get a kick out of the Idaho hills and grain operations. We get a kick out of seeing the logistics of moving 220-bushel corn to storage facilities," he explains.
Riggers' group has written sharing agreements, including operating agreements and an ownership LLC structure for each combine. Each farm pays rent to the LLC, and the LLC handles the tax returns, freight bills and other costs. The farmers in the group share the paperwork.
Sharing ideas and expertise has turned out to be the best part of Riggers' long-distance sharing arrangement. "More important than the iron sharing has been the people sharing—that was an unanticipated benefit," Riggers adds. The opportunity to learn from each other has been "more valuable than the savings."
EXTRA CONTENT:
Success Relies On Trust
The cornerstone of a winning sharing arrangement is the personality blend and trust among the partners.
Two agricultural economists—Georgeanna Artz, University of Missouri and Roger Ginder, Iowa State University—used case studies to collect information and to interview farmers in 2004 and 2005 who share or had shared equipment.
"Our interviews revealed a number of factors that appear to be critical for the success of a machinery and labor sharing arrangement. Issues facing all groups, regardless of size or complexity, include how to handle member entry and exit, schedule use of equipment, compensate for unequal contributions of time and equipment use, and make group decisions. Personal trust coupled with planning and good communication among members is also a key ingredient for success," according to "Sharing for Success: profiles of farm machinery and labor sharing in the Midwest" in which the economists describe 10 case studies of sharing agreements.
Other common characteristics include:
Put details in writing. Written agreements also reinforce business relationships. In some instances a limited liability agreement may be your best option. In their machinery-sharing case study, Artz and Ginder point out, "There was some comfort in having an explicit written contract that spelled out the terms of the agreement. Though they have been willing to be flexible in enforcing the agreement, it still provides a level of protection for those involved. Sharing their financial information before they formed the LLP was also important for easing doubts about whether the partnership would succeed."
There are multiple ways to set up a sharing arrangement. A few options include:
One person owns the equipment and takes responsibility for ownership costs; the owner signs a custom agreement with the sharing partner(s) to use the machine(s) for a set fee.
A joint purchase where each partner pays an agreed upon portion of the interest and principal payments through a joint bank account. Typically, the partner with more acres pays custom rates to the other owners for the extra acres.
Whatever the arrangement, use legal counsel to ensure it doesn't pose farm program problems. You also need to consider what happens to the machinery should a partner need to get out of an arrangement, divorces or dies. A joint tenancy deal works well for parent-child sharing arrangements; at the death of one, the remaining owner gets the machine.
Legal, liability and tax issues will vary from business to business along with the type of sharing arrangement. "A general rule of thumb, if you jointly own something, you have increased exposure to liability, but the tax structure is relatively simple," explains Frayne Olson, an Iowa State University scientist and one of the ISU machinery sharing workshop organizers.
Tips for drafting your operating agreement can be found at Iowa State University's machinery sharing web site http://www.extension.iastate.edu/coops/workshops/index.html under the "Resources" tab.
Other considerations. Thinking through a scheduling plan saves time and prevents problems. If sharing equipment and labor, specialists recommends all involved receive field maps, stagger maturity dates of crops, appoint a field boss to make the daily equipment decisions, account for the time it takes to move the equipment, and be flexible to work around weather, soil and crop maturity conditions. Determine who will do the record keeping and how it will be handled.
Compensation for labor isn't always as simple as trading labor, particularly if one producer's operation is larger than the other's and requires more manpower. Monetary compensation might be needed to make sure the partners pay and receive their fair share of the deal. Such arrangement will require more bookkeeping than a simple labor-swapping arrangement.
For more information on machinery sharing, visit http://www.extension.iastate.edu/coops/workshops/index.html.