Joint Ownership of Machinery
With the ever increasing cost of new and used farm machinery, it may pay for farmers to enter into joint ownership of certain farm machinery. Probably the best type of machinery to have in joint ownership would be combines, sprayers and drills. This type of equipment is usually only used at certain times of the year unlike tractors and trucks which can be used year round and would be more difficult to own and operate jointly.
The Iowa State University Extension Department has a very good article on how to structure these joint operations. Even if the ownership percentages are different from the acres that are farmed, the accounting for these differences can be done effeciently and timely.
For example, in the case of combine joint ownership, I believe that you should perform an analysis of the total number of hours that a combine should operate each year to get the best rate of fixed cost amortization. If you determine that this number is about 300 hours and you can average 10 acres per hour, this would result in the optimum acres of 3,000. You would try to find another partner or partners to get a total of 3,000 acres. This would allow you to minimize your fixed costs in operating a combine.
If you farmed 1,000 acres of beans and corn and owned a combine costing $150,000 for five years and then sold it for $50,000 after the five years, you cost of ownership of this machine is $20,000 per year. If you can find another farmer that has 2,000 acres, you would reduce your annual ownership cost from $20,000 by 2/3 to $6,667 or a savings over five years of about $67,000. Also, the other farmer may be able to provide additional services such as repair experience, trucks, dump out wagons, etc. that you do not have now.
Other factors need to be reviewed such as how close and compatible your farm partner(s) are. The age of the machinery, the amount of other equipment to support the jointly-owned machinery and who would operate and maintain the equipment.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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