Is Condo Storage for You
Most farmers are of an independent nature, however, in one area they may want to consider partnering up on is grain storage. The decision to build on-farm grain storage can be very complex. Farms that are mid-size or smaller usually find it cheaper to continue to bring their grain to an elevator versus storing it on their farm.
However, if their are several compatible farm operations in a central location, the idea of Condo Storage may make a lot of sense. The benefits are that instead of each farmer having to spend the same amount on certain items related to the storage facility that cost the same whether they build 5,000 bushels or 500,000 bushels, they may be able to pool their money together and only spend it once.
Most of these condo storage operations have employed a farmer-owned LLC. The farmer buys shares in the limited liability company and receive rights to store grain in proportion to the amount of shares owned in the LLC. The storage structures and equipment are owned by the LLC, not the farmers. This provides liability protection for the farmer investors. If somebody were to get injured (or even die) working in the storage facility, the only asset at risk are the assets of the LLC, not the farmers assets.
The LLC then depreciates the structure and equipment and passes the depreciation back to the owners based upon their ownership percentage. Also, the Condo LLC may charge each farmer a per bushel fee to store the grain and then the net income or loss is allocated to the farmer owners. If a fee is charged, this allows the LLC to offer its storage to other farmers that are not owners of the LLC. This can either help it make a profit or reduce the overall cost to the owners. There is typically a board of directors elected to govern the LLC and make decisions regarding the assets it holds.
If the farmers do not want to manage the storage facility themselves, they can contract with a local grain cooperative to manage and run the facility for them. Long-term lease options are also available under this structure. To entice a local cooperative to get involved, several hundred thousand bushels of storage will probably need to be committed to the condo program.
I believe that many mid-size farmers should look into this opportunity especially with long waits and long travel times to get to grain elevators these days.
This type of condo project probably has returned a much higher rate of return than buying a Florida condo in the last few years.
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.
If the farmer must buy his interest in the condo storage, how is that original investment handled? Are they allowed to write off or is it treated as a stock purchase?