There are a few key factors that determine the correct size of farm machinery:
- Power Unit Capacity – does the tractor have adequate weight, horsepower, traction, and hydraulic capabilities to handle the machine in question?
- Machine Field Capacity – is the machine in question large enough to cover all the acres farmed in a timely manner?
- Operator's Financial Capacity – do both parties involved have the cash flow, financing, or knowledge to handle debt associated with the machine in question?
- Cropping Needs – how many acres must be farmed with the machine in question, and how do individual cropping needs vary between all parties involved?
Other factors that could complicate this decision include individual debt load, mechanical skill, and physical limitations of each party's fields.
Machinery Costs
Joint Ownership Costs
Machinery ownership costs, also referred to as fixed costs, are expenses that remain constant regardless of the level of production output. Fixed costs include interest, depreciation, taxes, insurance, and housing. Regardless of the level of output (bushels or acres), these costs will remain stable. Shopping for competitive financing rates, cash purchase discounts, and manufacturer rebates help reduce initial ownership costs. Producers who maximize machinery usage can dilute the fixed costs of owning machinery, thus reducing their ownership costs. Typically, ownership costs are highest in the first few years of the ownership period due to interest and depreciation of newer assets. However, ownership costs generally decrease as machinery ages.
Joint Operating Costs
Machinery operating costs, also called variable costs, will change as machinery usage changes. Expenses such as fuel, lubrication, labor, and repairs will increase as machinery usage increases. Preventative maintenance, skilled machinery operation, and basic mechanical knowledge can all help to reduce the amount of operating costs a machine accumulates over its lifetime. Typically, operating costs are lowest in the first few years of the ownership period due to new parts and (possibly) warranty coverage on defective parts. However, operating costs generally increase as machinery ages.
Complications with Joint Ownership
Joint ownership can be challenging if ownership and operating costs are not clearly recorded or understood. If one of the parties incorrectly estimates their cropping needs, or fails to accurately record repair costs, or both parties incorrectly size the machine for their operation, the costs of those mistakes will haunt all of the parties involved. Consider all methods of investment – suppose one owner wants to purchase the machine outright with cash, and the other prefers to finance at a low interest rate for several years. The first owner might have debt recorded on their balance sheet that they don't want to show, and the second owner might be forced to lay out cash that they don't want to spend. Also, what happens if everyone needs to use that machine at the same time? Who gets to decide when the machine will be replaced, and how much should be invested in the replacement?
When deciding to jointly own machinery, be careful you don't accidentally become responsible for the other party's current debt load, negligence as an operator, or changing cropping needs. Fair joint ownership agreements should consider how repairs are split, who is responsible for the initial investment, and how the agreement can be fairly terminated if one or more parties fail to uphold their end of the agreement. Having legal advice and a written contract can save many financial and emotional hardships if joint ownership arrangements should fail.
Fortunately, you won't be the first person to work through a joint ownership plan. Several university Extension programs in the Midwest have developed example contracts and ownership plans that highlight considerations and scenarios you can review to figure out exactly what should be important to your farm's needs.
Alternatives to Joint Ownership
Custom Hire
Custom hire is a financially feasible option for farms that require highly advanced operations within a very short timeframe. Custom hire has become more popular for operations like:
- Chopping corn silage or other forage crops
- Increasing corn grain or soybean combining capacity
- Variable rate application of lime or fertilizer
- Planting row crops with precision agriculture technologies
- Spraying restricted-use pesticides or fungicides on tasseling corn
By custom hiring operations, producers eliminate the need for out-of-pocket machinery repairs, ownership costs, or continued investment in updated precision technologies. In this scenario, the high fixed costs of continual machinery replacement are diluted by the large number of acres that the custom operator covers each season.
Source : psu.edu