By Katie Hancock, agricultural commodity marketing consultant for Brock Associates
We see advice and suggestions on farm succession plans, but rarely an example of what the young farmer actually experiences. Why? Because every situation is different. Succession plans are more crucial as the average age of farmers increase, so it’s important to understand the commitment it takes from the next generation’s point of view. Here is a hypothetical example, similar to the experiences of many young farmers in row cropping.
The first step could require off-farm income. Many farms have trouble supporting the next generation, or don’t pay enough to support the ideal lifestyle. A job outside of the farm, while farming with the operation, is educational and builds stability and wealth.
The next step would include finding farms to rent, maybe even 100 acres to start. To put it in perspective, 100 acres of corn would require at least $600/ac to get the crop in and out. That’s $60,000, which is a lot of money for someone young to borrow, assuming a low net worth. Buying the equipment to farm 100 acres is not realistic, so it would also require the help of a parent or neighbor to custom farm those acres.
Ideally, the farmer would use this small farming opportunity to build confidence in oneself, landowners, lenders, and the current operation he wishes to take over. It’s tough to make much money on 100 acres - if any in this current farming atmosphere. Having the freedom to manage independently is the best opportunity to prove oneself and take on more land.
Assuming the older generation has faith in the next farmer after proving himself, this is when the succession would actually begin. Let’s assume the parent owns the farming business. He can either gradually sell assets like equipment as the young farmer acquires more rented land, or sell all equipment and hand over rental/owned property. A gradual shift in ownership is ideal if the two work compatibly. In some situations depending on personalities, the new farmer needs to have complete management over the farm. It’s difficult to completely take over by purchasing assets like equipment because again, this individual is unlikely to have the capital to do so.
Let’s assume the young farmer now rents 100% of the land, owns the equipment, and pays inputs and labor. This is a now a highly leveraged, multi-million dollar business without even owning any land! Plus, the farmer would probably have to quit the off-farm job, relying on a spouse’s off-farm income for steady cash flow. Not to mention the stress of running a farming business. Hopefully, the older farming generation would work for the farm and/or mentor the new farmer.
You can see how this is stressful situation and could take many years to complete. As someone in a situation very similar to this, I assure you it’s difficult. There are hundreds of scenarios young farmers face—some easier than others, but very few are the laid-back lifestyle in which the public often expects. Young farmers that want to make it are educated, ambitious, and confident. Overall, it’s safe to say young farmers will earn his or her right to farm today and for years to come. Like my Dad always says, “There’s no easy money—if it were easy, everyone would do it."