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Beefs and Beliefs

Farm Futures Business Summit had lessons for beef producers

Here's a smattering of what I learned from the grain farmers at annual business-focused meeting.

 

Even though our company's Farm Futures Business Financial Summit each winter is aimed at grain farmers, I always find some good information there for beef operations, too.

It's been a few weeks since I was there but I've been hoarding my notes to share highlights with you. I plan to develop some of this material for the magazine, both in paper and online. For now, however, here is a rundown on some things I learned.

Kevin Bearley, an accountant and attorney with the management firm K·Coe Isom, says only about 30% of all family-owned businesses pass on to the second generation. He says there are three main reasons farms meet their end, with no one to carry on the business.
1. Heirs have to write a huge check to the IRS upon death of the owners.
2. A divorce forces division of assets.
3. There is no plan for succession and the heirs fight over it, even though they got along previously.

Bearley says the outlook is grim as 70% of US farmland should change ownership in the next 20 years and most family farm operations do not have a next generation skilled and ready to take over the operation.

To change trajectory, he says the current ownership must train the next generation, develop in their successors a sense of ownership and trust, and find a way to offer viable compensation.

He also says gifting and trusts remain viable ways to avoid two of the problems with passing along the assets of an operation. Bearley explains there are many facets to how these tools work. It sounds like only a competent estate planner could help weave through this maze of federal and state laws surrounding estate planning and transfer. One tip, though: A tool he mentions is the Income Defective Irrevocable Trust, or IDIT. It moves assets out of your estate and can allow them to appreciate for generations without taxation. IDIT-held assets also are not involved with marital assets.

Scott Robinson, president of FarmLink, talked about the growth of data science and analysis and said something that really struck a note with me. He said the amount of data flowing from farms through data-processing firms and back to farms should really change operations as it shifts attention from bushels per acre production to net profit per acre. I've written about this same problem many times in Beef Producer in recent years, but from a beef industry viewpoint. By that I mean our industry is foolishly stuck on individual animal performance when we should put the emphasis on net profit for the entire operation and use net profit per acre as one of our analytical tools.

Mike Boehlje, ag economist at Purdue University, reminded the audience, which was primarily row-crop farmers, that in good times they had let costs get out of control. He said they should "get down in the weeds and look at the details and make sure you are doing everything right."

Boehlje also told producers they need to know their cost of production per acre and per bushel and also know their margins on all production.

Working capital is critical when times get tough, something the beef industry will face soon enough.

He also reminded the farmers at the meeting that their costs of procurement for ALL supplies are critical, in good times and bad. Low-cost production is imperative for farmers the same as it has been proven so for beef producers over and over and over again.

He asked them: "If you paid too much for land, you guaranteed yourself to be a high-cost producer for how long?"

"Forever!" he squawked at them. "Forever!"

Costs matter, in good times and in bad. Everything you do should make money.

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