Tips to Navigate Transition Storms! - Elaine Froese | Canada’s Farm Whisperer | Your go-to expert for farm families who want better communication and conflict resolution to secure a successful farm transition

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Tips to Navigate Transition Storms!

by | Apr 25, 2024 | Farm Family, Farm Family Coaching, Grainews Articles

Last month, in the U.S.,  heard Steven Bohr of Next Generation Ag Advocates encourage young farmers with tools for transition. The average price per acre in Iowa is $6810 and 34% of the land has owners over 75 years of age. Sixty percent of the land is owned by those 65 and older. Landowners are the oldest in history, there are all-time high land values, and the cash flow to acquire land is outside of long-term profitability according to Bohr.

The next generation of producers according to Bohr looks like this in Iowa:

  • 68% of farmers have no children who currently farm.
  • 51% of farmers have not identified a successor.
  • For each farmer under the age of 35, there are 6 over the age of 65.

I see an opportunity here for young farmers to develop relationships with non-related parties. Bohr uses a worksheet to also put out the idea that there is a price to buy family land (discounted after debt) which he calls “Family Land Value” not fair market value. I call this “Fair Family Price”. Regardless, the hard conversations are around expectations about who can purchase farm assets, and who can afford to cash flow the purchase of farm assets.

The other part of this storm is the expectation of parents to divest farm assets to give gifts or inheritances to non-farm heirs. Somewhere the perfect storm is begging a new money script from parents as to what is a reasonable expectation for the transfer of farm wealth IF the family really wants to keep the farm business intact.

In point form here’s Steve Bohr’s “Farm Succession Perfect Storm”:

  1. Age of landowner, 60% over 65.
  2. All-time high land values.
  3. Cash flow to acquire land is outside of long-term profitability.
  4. The farm is a legacy asset.
  5. Control is difficult to surrender but required to transfer for transition.
  6. Quality of advice from specialists may be limited by location, experience, and incentive.
  7. Interest rates are changing and becoming higher.
  8. The longevity of landowners is seeing the “sandwich” generation losing ownership opportunities.
  9. Family fights over fair vs equal are needing to view performance-based pay vs. inheritance-based pay.
  10. Farming is difficult, and each generation produces fewer farmers who are willing or able to take risks.
  11. Tax law uncertainty with estate, income, capital gains (and basis in the US)
  12. Deferral Mentality: procrastination causes owners to be susceptible to emotional decision-making mixed with greed, hope, and fear.

Bohr’s solutions:

  1. Know your role as a landowner, producer, or interested 3rd party. Bohr talks about a century match, leasing agreements, advisory roles, and non-operating landowners. He is skilled at helping match retiring farmers to the next generation of landowners. This is your chance to tell your story often and build relationships with bachelor farmers or farm owners who have no successor to create new non-related partnerships. (Read my blog on landlord relationships).
  2. Partner for the economics of scale. Share equipment, use input buying groups, and gain financial benchmarking data with peer networking groups. Terry Betker of Backswath and Rob Saik of Powerfarm have used these groups well in Western Canada to help farmers grow with group coaching.
  3. Understand how to use the tools in your toolbox: In the US, the basis is set up. Corporation shareholder agreements. Beginning Farmer programs, and investment strategies for buying land.
  4. Understand tax brackets, bonus depreciation, and lease-to-own leases. (Ask really good questions of your accountant and ask for clarification when you don’t understand!)
  5. Understand the marketplace. Options for the land with farmer ownership, division of land, corporate land, trusts, and a combination of options. Give heirs a reason to want to own load, and let siblings “row the boat together” to have skin in the game with the success of the farmland ownership. Discuss the different approaches and outcomes with fair market value vs family market value. What are workable options for keeping the land together?
  6. Be prepared to understand the consequences of your transition decisions, eg. will probate.
  7. Prepare to compete with the “big boys” the farmers with the ability to buy land. Are you developing land acquisition strategies with neighborhood relationships and well-written leases? Landowners are looking for stewardship and care of the land. They want to share similar philosophies for farming and a nice person to work with. Producers want a long-term relationship and a way to learn and carry on their legacy while providing a great way of life for their family. Dick Wittman TPAP instructor and farm management specialist from Idaho, would argue there are lifestyle farmers, those farmers who need to join forces with other producers, and then the “big boys”.
  8. Farm without the bank…have working capital of more than 100 % of income. Dr. David Kohl, from Virginia Tech, would love this recommendation. How much are you protecting and building working capital?
  9. Understand the difference between an “exit” strategy when the farmer spends down the business over time with the intention of liquidation, vs the “entrance strategy” where you are growing into the operation to earn respect and trust. In Canada, we call this the “successor effect” where the young farmer’s passion for farming drives the growth of the farm to support more than one family. Bohr also visualizes an entrance strategy where young farmers approach a mature landowner with a business plan. Whatever approach you take, ask for help! Network with key people and find a way to partner with a mentor.
  10. Identify what matters and what you can control. Does your family serve the business or does the business serve the family? Be clear about what you are focused on, then execute.

Book some time to chat with Steve Bohr at 1-800-375-4180. (www.nextgenag.us) I found his challenges and ideas refreshing as he is practical and highly experienced in seeing scenarios that can work. Whether you farm in Canada or the US, there are nuggets here for you to weather the storm, and be the captain of your own ship. Ask for help!

***

Elaine Froese and her team of coaches can help you have safe respectful family meetings to find harmony through understanding. Visit here to book a free discovery call to navigate your transition well.

Did you enjoy Tips to Navigate Transition Storms? You might want to check these articles out too:

Being an Emotionally Strong Farm Parent
How to Create More Financial Transparency with Your Farm Team​
Just converse: it feels so good to talk!

Follow Elaine on Social for More Helpful Farm Family Advice!

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