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Serving: WI

Buying hay equipment with neighbor makes sense

A semitrailer filled with hay and other farming equipment next to a field of crops Fran O'Leary
MACHINERY PARTNERSHIP: By combining haying resources, you and your neighbor can upgrade your equipment and spread the overhead and ownership costs over double the acres of each individual.
Agrivision: Test out the arrangement before forming a partnership or LLC.

My neighbor and I just finished chopping corn silage, and we are discussing purchasing a chopper and new ag bagger together. We each farm 325 to 360 acres, and we each have 225 to 250 milking and dry cows. We each raise about 100 dairy heifers. I feed out 125 dairy steers. My neighbor sells his bulls as calves. We both have old pull-type choppers that are no longer dependable. I have an ag bagger, but it is 15 years old and needs replacing. Our mowers, tedders and six chopper boxes are in satisfactory condition.

We would like to buy one new pull-type chopper and a new ag bagger. We figure we can put up our haylage and corn silage a lot faster and with fewer breakdowns, and we can share labor — I’ll pay the people who help harvest my crops, and he will pay them when we do his crops. Do we need to enter a partnership or an LLC to do this, or just sign some written machinery agreement? If this works out, we are talking about eventually buying a mower, other haying equipment and maybe other farm equipment together. What are your thoughts?

Tom Kestell: I think working together with your neighbor can be a great idea if done properly. I would definitely form a separate limited liability company to jointly own and operate this equipment. Thoughtful planning is always the first step in a new venture. Hopefully this will be a long-lasting agreement, but the first or second part of a new agreement or partnership is to have an exit plan, if either or both parties want to exit the agreement. A little wise legal advice might be the cheapest part of this venture.

You have some time over winter to investigate the possibilities of moving up to a small self-propelled unit for your harvesting needs. Many smaller self-propelled harvesters would give you increased harvest capacity. Used on a limited number of acres, these units would serve you both for many years. I would talk to farmers who have made the switch to self-propelled harvesting units to learn the pros and cons from someone who has direct experience with the two equipment choices. Also take into consideration harvesting schedules, separate needs each farm has and how you will handle these issues.

Sam Miller: Based on your question, you and your neighbor have thought this through. By combining your resources, both of you can upgrade your equipment and spread out the overhead and ownership costs over double the acres of each individual. There are several business arrangements you could employ, from a simple partnership with a written agreement to an LLC or a corporation.

If you plan to also start doing custom work for others, it may make sense to form an LLC. If you plan to use the equipment for each of your farming operations only, a written agreement may suffice. Depending on this answer, visit with an attorney regarding establishing an LLC, or contact your local Extension ag agent for sample written machinery ownership agreements. Good luck replacing your harvest and bagging equipment.

Katie Wantoch: Each individual farm operation is different and has unique characteristics. A business typically passes through at least three stages during a farmer’s life: entry, growth and exit. You and your neighbor are likely in the growth stages, but this new endeavour will take you back to that entry stage. The entry (or beginning) stage involves testing and establishment. Sufficient capital and managerial skills need to be acquired to establish a financially stable operation that will generate adequate income and be able to succeed.

It sounds like you have both analyzed the current situation and outlined your objectives. Next, assess the possibilities of working together in a variety of joint business arrangements. Be sure that who’s paying for what and what’s being done by whom is drafted in a written agreement and signed by all parties. You and your neighbor would next enter a so-called testing stage, where you can see if this joint arrangement can work for both parties. This testing stage may be for one year or several years. Your written agreement should indicate a timeline when you and your neighbor can review how things are progressing. As time goes on, you may choose to enter into a partnership or LLC, or you may decide to exit this agreement if it is not working out for both parties.

Farming after spouse dies

I am a 76-year-old widow. My husband died in June. I have someone who is going to harvest my 200 acres of corn and soybeans. I need to rent my farm next year. The neighbor who is harvesting my crops this fall says he will pay me $150 an acre for rent. He is a nice man and lives just a half-mile down the road from my house. Another farmer, who rents about 1,200 acres and lives 15 miles from me, says he will pay me $170 an acre. I don’t know the second gentleman at all, but my nephew knows him and says he is a pretty good farmer. This is important to me because the only income I have now other than the land rent is my Social Security, which is only $550 a month. When my husband was alive, he got $1,400 a month in Social Security. Please advise.

Tom Kestell: Let’s address your first question first. I assume you have known your neighbor for some time. He is willing to help you out this fall with your harvest, and I am quite sure he would be there to help you out in the future with such things as plowing snow this winter. Maybe this could be part of the rental contract — a benefit to you but to no major cost to your neighbor. This is in no way saying that the distant renter would not do a good job or pay the rent, etc. There is always nonmonetary value in working with someone you know, like and respect.

On the second question, I would contact your Social Security office to get the latest information on the benefits you are eligible for. Things change all the time, and you and your husband have earned these benefits, so use them to the full extent to benefit you in your retirement. I believe you should be able to backtrack your benefits to when your husband passed, and you would be eligible for the $1,400 per month. There should be free legal advice available to you at your local Department of Aging.

Also something to think about: You are sitting on many assets that you and your husband have earned, meaning the land, equipment, etc. Unless you have a very good reason for keeping these assets, some of them could be sold off to give you immediate income, or in the case of the land, it could be sold to a reliable buyer on a land contract to give you monthly income, too. Plan well with good legal advice, take advantage of the assets you have, and enjoy your retirement — you’ve earned it.

Sam Miller: I am sorry to hear about your husband passing away. This has created many changes in your life, both personally and financially. Many of these changes can be overwhelming, with a multitude of business decisions to make and adjusting to financial and cash-flow changes. As for renting the farm, it sounds like you would prefer to rent to the neighbor. If this is the case, indicate that you have had a higher offer and ask if he could increase his offer. If he does not, you have a choice to make. Once you have negotiated an agreement, have it put into a written agreement, including maintaining fertility of the land.

Lastly, contact the Social Security office regarding your Social Security. You may be eligible for a higher dollar amount from your husband’s Social Security, and it is worth looking into.

Katie Wantoch: I am deeply sorry for the loss of your husband. I’m sure this is a difficult time for you, and you have many decisions that need to be made regarding your farm. Choosing a farmer to rent your land can be a complex decision and should not always be based on price. Which farmer will manage the farmland as your husband would have wanted? Who do you think your husband would have chosen? These questions may help you with selecting a new renter.

I would also suggest that you reach out to a Social Security representative regarding your husband’s benefits. As a widower who is over age 60, you may be eligible to receive his monthly benefits. Your benefit would convert to his benefits, which in this case would be a larger monthly amount compared to your monthly benefit ($550). The monthly amount you would receive will be a percentage of your husband’s basic Social Security benefit, but since you are full retirement age, you will receive 100% of his benefit amount.

This amount may vary based on age and type of benefit. You may also receive a special lump-sum death payment of $255 if you were living with your husband at the time of his death. I would encourage you to reach out to the Social Security Administration at ssa.gov to request an appointment to discuss your and your husband’s benefits.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Extension ag agent specializing in economic development, Dunn County, Wis. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email fran.oleary@farmprogress.com.

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