Equipment and Labor Sharing: a Risk Management Tool for Small and Medium-Sized Farmers

http://www.extension.iastate.edu/coops/workshops/

North Central Risk Management Agency

Iowa State University Extension

University of Missouri Extension

Sponsors

Website

• Purpose• Flyers• Brochures• Registration• Dates and Locations• Resources• Case Studies• Presentation• Contacts

Website - PurposeThese workshops will discuss strategies for sharing machinery and labor in your farming operation and provide tools to help you evaluate sharing as an option. The workshops will cover:

Benefits and drawbacks of sharing equipment and labor

Tax, liability, and farm payment eligibility issues associated with equipment and labor sharing

Planning for sharing resources

Available resources for planning and implementation of resource sharing arrangement

http://www.extension.iastate.edu/coops/workshops/

Flyer

Brochure

Dates and LocationsIowa Workshop Dates

Date Location

February 16 Webster County Extension Office108 South 8th StreetFort Dodge, IA

February 21 Hills Bank720 First Ave SEMount Vernon, IA

February 22 Carrollton InnHwy 71 N & 18th StreetCarroll, IA

Missouri Workshop Dates

Date Location

February 28 Farm Credit Services Office 2880 North Washington Chillicothe, MO

March 1 Nevada TeleCenter Bowman Cafe2015 North West Street Nevada, MO

Registration

General Resources

AgDMResources

AgDM Spreadsheets• http://www.extension.iastate.edu/agdm/crops/xls

/a3-34jointmach.xls• http://www.extension.iastate.edu/agdm/crops/xls

/a3-38jointventfarmmach.xls• http://www.extension.iastate.edu/agdm/crops/xls

/a3-21_35machfinancing.xls• http://www.extension.iastate.edu/agdm/crops/xls

/a3-24fieldcap.xls• http://www.extension.iastate.edu/agdm/crops/xls

/a3-28fielddays.xls• http://www.extension.iastate.edu/agdm/crops/xls

/a3-29machcostcalc.xls

Operating Agreement

Business OrganizationCapital ContributionsLand HoldingsProfits and lossesRights to file suitTransfer of membership interestSpousesTermination and dissolutionPersonnelInsurance Record keepingMeetings and CommunicationFinancingReplacement of equipment Use of equipment outside the system Day to Day issues

Example Articles and Operating Agreement

Business Plan

Exit, Succession or Transfer

Legal OrganizationResources

Machinery Sharing and USDA Payment Limitations

USDA commodity payment limitations apply to each individual “person.”Limitations:Loan Deficiency Payments $75,000 Counter-cyclical payments $65,000 Direct payments $40,000

A “person” can be:An individual (including both spouses) A limited partnership A limited liability partnership (LLP) or company (LLC) A corporation, joint stock company or association A trust, estate or charitable organization A government agency Note—an ordinary partnership does not qualify. In a general partnership each member may qualify as a person. The “person” must be “actively engaged in farming,” which is defined as contributing:“Significant contributions of land, capital, or equipment or a combination of all three.” “…and active personal labor or active personal management or a combination of both.” “Contributions must be at risk and commensurate with the claimed share of profits and/or losses of the farming operation.”

Case Studies

Ten Case Studies to be listed

Presentations

Will be posted and available soon

Sponsors

Carroll County Extension Service

Hills Bank

Linn County Extension Service

Webster County Extension Service

Local Sponsors

Contacts

Program components

• Machinery Dating

• Machinery Economics

• Analyzing Case Studies

• Legal Business Organizations

• Farm Program Issues

• Wrap Up

• Evaluations

Machinery Dating

Purpose: to get producers to think about the importance of communication, skills needed to make sharing work, and realize some of the benefits.

Activity: Break into groups and have them select Personality Characteristics that they would like to haveIn their group.

CaretakerOptimisticPassionateEnthusiasticTrue RomanticPeople OrientedPeacemaker

What Are You?

PreparedLoves to PlanDetail OrientedPunctualValues Family TraditionsConservative and StableWell-Organized

EnergeticDesires ChangePlayfulMaster NegotiatorNatural EntertainerAccepts ChallengesImpulsive & Spontaneous

Problem Solver“Why” MentalityVery ComplexCool, Calm, CollectedIntellectualWork Is Play, Play Is WorkPerfectionist

Over-EmotionalMushyUnrealisticTenderheartedSmotheringTalking to MuchNosey

You Are Seen As

RigidRestrictedStubbornOpinionatedBossyUptightMarried to the Task

RudeIrresponsibleNot SeriousSelfish or Self-centeredIgnores RulesImpatientFlirtatious

ArrogantUnrealisticEccentric, WeirdUnfeelingSarcasticCriticalUnappreciative

CaringRomanticSpiritualHaving FaithFlexibleCaretakerGreat Communicator

You See Yourself As

StableDependableFirmKnows What’s BestEfficientResponsibleGoal Oriented

Straight ForwardEasy-goingNow OrientedNegotiatorMulti-taskerSpontaneousSucceeding

KnowledgeableExpedientVisionaryInnovativeRationalWittyDeep Thinker

Machinery Dating

Second Activity: Have groups select Machinery Sharing Characteristics that they would like to havein their group.

Example: weekends off, work long hours, repair costs divided equally, operate new equipment, separate entity for machinery, have excess labor, want spouse involved, equal ownership of machinery

Advantages of Sharing

• Greater annual use of large machines• More efficient use of labor during peak

seasons• More dependable than hired labor• Fields more spread out—fewer weather

delays• Opportunity to do custom work

Advantages of Sharing

• Specialization of labor• More efficient use of repair tools and

facilities• Volume discounts on input purchases• Two (or more) heads are better than

one!

Machinery Economics

• Getting Started

• Scheduling

• Record Keeping

• Cost Accounting

• Income Taxes

Machinery Economics

• Example case

• Worksheet Activity for participants to work

through

Case Studies

Ten case studies that focus on three typical scenarios:

Combine sharing

Machinery only

Total sharing (inputs to marketing)

•Neighbor

•Other State

Combine Sharing

Your combine is worn out. You have decided to trade. A new or newer combine is too high priced to meet your per acre goal. You’ve decided to look at the potential of a combine sharing arrangement.

You have a mid-sized profitable operation, but you see the rapid increase in the replacement cost of your machinery line. You realize you need more acres, but are not interested in a bidding war to get those acres. You are fairly flexible and understand the financial benefits of machinery sharing. You would prefer to be responsible for just your own acreage base. You would like to find someone to partner with on the “big pieces” e.g. the combine, 4wd tractor and planter.

Machinery Only

You and a neighbor have worked together sharing some equipment and labor. You both have decided to broaden the scope to a full line of machinery and to share all the fieldwork. You want to upgrade the size and technology of the equipment line. To do this you feel you will need to add others to the group for both the acres and the financial strength to justify a “first-rate” line of equipment.

Sharing It All

1. Partner Characteristics

2. Strengths and Weaknesses

3. Opportunities and Threats

4. How to Begin?

5. Where to look?

6. Legal Issues

Select a “Spokesperson” and “Recorder” to report back to the whole group.

Case Study Questions

Legal Business Organizations

• Business Structures• Operating Agreements• Video of Roger McEowen –

Sharing Farm Machinery Alternatives

• Resources

Farm Program Issues

• USDA Commodity Payments

• Impact of Business Structure

• Reviewed Resources

Wrap Up

• Review of workbook materials

• Highlight the case studies

• People to contact

Evaluations

• End of meeting

• Follow-up evaluation

Fort Dodge EvaluationsStrongly

AgreeAgree Neutral Disagree Strongly

Disagree

1. The objectives of this workshop were clear to me.

12 18 3 0 0

1. The session covered all the learning objectives outlined.

6 23 5 0 0

1. The content was well organized. 15 15 4 0 0

1. The information presented was current or new to me.

10 13 7 4 0

1. The visuals and handouts were easily understood and helpful.

14 16 4 0 0

1. Enough time was available to cover the subject matter.

9 17 8 0 0

1. The training provided me with new knowledge.

13 12 9 0 0

1. The information presented will be helpful to me in my business.

15 15 4 0 0

Fort Dodge Evaluations

TopicsVery

ConfidentModeratelyConfident

NotConfident

The potential benefits of sharing machinery and labor in your operation

26 9 0

The potential challenges for sharing machinery and labor in your operation

24 10 1

The options for creating a business organization to share machinery

16 18 1

The possible implications on farm program payment eligibility

10 18 7

The potential tax issues involved in sharing machinery

7 23 5

Availability of additional resources to help you plan for machinery and labor sharing in your operation

24 10 1

Fort Dodge Evaluations

Practice or ActivityVery

LikelyModerately

LikelyNot

Likely

Seek more information about machinery and labor sharing arrangements

23 9 3

Initiate discussion with potential partners about sharing machinery

20 13 1

Develop an operating plan to share machinery and labor

18 13 2

Make changes in your current sharing arrangement (if applicable)

6 13 2

how likely are you to take the following actions:

Summary

• Three workshops were conducted– Fort Dodge, Iowa– Mount Vernon, Iowa– Nevada, Missouri

• 81 participants

Next Steps

• Examine and refine the pilot workshop

• Identify case study gaps and fill them

• Develop a plan to conduct workshops beyond Iowa and Missouri– Identify partners in other states– Acquire funding for conducting workshops

• Publish as a North Central Regional publication

Thanks for the opportunity to present

Questions?