With input costs adding to uncertainty for the 2009 growing season, managing expenses will become even more important. Machinery sharing through ownership agreements may be the perfect solution.
Tim Lemmons, University of Nebraska-Lincoln extension educator, sees two good options for machinery agreements.
Option 1: Sole Ownership
Sole ownership is an agreement where one party owns the equipment, makes payments and repairs, while another producer pays for use of the machinery, similar to renting. This option reduces costs and the agreements can be claimed as a "crop expense" as opposed to "custom farming."
"Sole ownership agreements are a good option for younger farmers or those just starting in the industry," Lemmons says. They can benefit by operating under utilized equipment owned by their neighbors.
Option 2: Joint Ownership
Joint ownership is an agreement in which all parties are responsible for a portion of payments and expenditures. Ownership can be shared among family members, close relations, neighbors or other business partners, however Lemmons points out, the more people you have in an agreement, the more people you have to keep happy. Communication is important in these arrangements to avoid a bottleneck on equipment operation when both parties want to use the machinery.
A vital component in shared ownership is the machinery agreement. The document outlines responsibilities of the parties as well as the management of the equipment. "The lack of a written agreement is commonly found among families," Lemmons says. "People forget what they verbally commit to and it can cause problems."
- Generally, machinery agreements can be written by the parties. He recommends having an attorney examine the agreement and keep a copy on file.
- It is important that machinery agreements contain a dissolution plan in the unexpected events of bankruptcy, death, retirement or irreconcilable differences. Lemmons says these agreements should include plans for the machinery in the event of each of these situations.