A friend who farms next to our farm bought a new planter. He is suggesting I sell my planter and hire him to plant all my corn as well as his. We both grow about 1,000 acres of corn and 800 acres of beans. We both have newer no-till drills for beans. I wonder if this is a good idea, especially after the wet spring we just had. It was hard enough planting 1,000 acres of corn with all that rain; 2,000 acres would be twice as difficult. He says his planter is bigger than mine and does more acres faster. He did get his corn planted before I got mine in. I’d like to work with him, but I have some concerns. What are your thoughts?
Stout: I would have some concerns, too. Doing a good job of planting isn’t just about speed. Correct, even seed placement can more than make up for a day or two of delayed planting.
Is he careful about planting when conditions are right, and does he check regularly for good seed depth and placement? Would he plant all of his acres first and then do yours? If so, you would lose that edge for timely planting.
Does his planter have the attachments on it that you would want? For example: no-till, starter fertilizer, row shut-offs, etc. According to the 2019 Iowa Farm Custom Rate Survey, a custom planting charge would be at least $21 per acre, more for no-till, starter fertilizer, row shut-offs, variable rate planting, GPS capabilities, etc.
My thinking would be that with 1,000 acres, you can justify owning your own planter and doing your own planting. That opinion might change if your planter is worn out and needs replacing or major updating.
Miller: Before hiring him to plant all your acres, start with 80 or 100 acres. Granted, the first year you would have extra planting expense since you still have your own planter. However, you would test how you work together without having tremendous risk.
If the experiment works out and you want him to plant all your corn, think about trading your planter and drill in for a more advanced bean planter that would let you plant your beans and his beans (if he agrees). If you start on beans when your neighbor starts on corn, you might grow a few extra bushels because of the early start.
Be sure and use recommended area custom rates in determining how much to pay each other.
Plastina: From an economic perspective, the answer to your question involves 1. comparing the relative economic costs of each alternative, and 2. considering the tax consequences of each option.
On one hand, if your planter is fully paid for and its maintenance cost is low, then hiring your neighbor to do the planting will increase your cash needs (since savings in fuel and maintenance of your own planter will be more than offset by the custom planting rate charged by your neighbor) and most likely your total cost of production per acre.
Moreover, if you choose to sell your planter and it happens to have a low tax basis because it has been aggressively depreciated through Section 179 and bonus depreciation, all revenue from the sale above the tax basis will be counted as ordinary income for tax purposes and will be subject to income tax (but not self-employment tax). If you buy health insurance on the individual market, the sale might make you ineligible for the advance premium tax credit. Consult your tax specialist before making a sale decision.
On the other hand, if your planter has high maintenance costs, is not fully paid for and does not have a low tax basis, or you want to avoid putting the hours to do the planting altogether, and you trust your neighbor will do a reasonable job in getting your corn planted on time, the alternative of hiring him might be reasonable. Even in this case, start small in a portion of your field using a written agreement, and test the waters before selling your planter.
Expanding your farm
With weak crop prices, tariffs and weather problems, this may be the last year of farming for a smaller neighboring farmer. He is my age (55 years old) and has no one farming with him. My son and I are interested in expanding, and fortunately we are on solid financial footing. Should we wait to see what happens this fall or should we proactively approach the owner and offer a buyout, or make some other proposal?
Stout: It really depends on your relationship with the neighbor and how you approach him. You may run the risk of offending him making the assumption that he can’t make it in farming anymore, so you have to handle the matter delicately.
He is probably a little young to be thinking about retirement, so unless he has a career in mind he may not even be thinking about that. If he owns his land, you could mention that with your son in the operation you are wanting to expand and would like to rent his land when the time comes that he wants to retire. If he has any machinery you could use, that might sweeten the deal to offer to buy his equipment.
Miller: Sometimes a direct inquiry can backfire on you. However, there is nothing wrong with letting your neighbor know that if he ever retires, you might be interested in renting or buying his farm. You can ease your way into it by indicating you think he is probably a long way from taking the retirement step, but if he ever thinks about it, you would appreciate him giving you a call — especially since you have your son working his way into your operation.
If you can take a “low-key” approach to the neighbor, with a legitimate reason to be interested on behalf of your son, he would probably not take offense. In fact, if you are on good terms with him, there is no reason to think he would not call you if he was going to quit.
Zhang: I would not advise proactively approaching him with a buyout offer since he may feel you are assuming he could not weather the storm. It is particularly sensitive given he is only 55 while the average operator age is close to 60 now, and he may not want to retire if all works out.
That said, I think mentioning to him that your son is looking for plans to expand the farm in the long run and would be willing to rent his farm if he eventually decides to retire would be fine. Chats over coffee or in church might help ease the possible awkwardness, but sincerity would be key in this communication.