On Rick and Justin Lane’s farm near Chandlerville, Ill., the “right” structure for bringing in the next generation has evolved right along with the farmers it serves.
Like a lot of young farmers, Justin came back, exchanged labor for equipment, then formed a partnership with his dad, Rick. The actual structure, though?
Justin laughs and says, “We do things kind of loose, but it’s worked. We both feel like we’re getting a fair shake.”
As it turns out, that’s what farmers of every generation say actually matters, as farmers all over Illinois seek to bring in the next generation. Farm management specialists expect this next year to be one of growing retirements and transitioning management roles.
What will those new business structures look like? Prairie Farmer caught up with three different farm families to learn how they farm together, what they like about it, and what they’d do differently.
Rick and Justin Lane
Justin worked as a dealer representative for Caterpillar in North Carolina and commuted back to the farm to help in spring and fall. When he rented 100 acres adjacent to the farm in 2013, he started trading labor for equipment with his dad — working 10 days every spring and fall to plant and harvest.
“I used his equipment to farm it, and he used my labor for 10 days,” Justin recalls. “He gave me a good start.”
Eventually, Justin left Caterpillar and moved back to Illinois with his wife, Jessica. He and his dad picked up more acreage, and in the past three years, have expanded to about 4,000 acres of corn and soybeans.
Now the pair operate on a 50-50 partnership. As they expanded the farm, Justin purchased any necessary equipment. Income and expenses flow in and out of the partnership, and they operate two different business entities based on acres farmed. Justin controls about a thousand acres and the rest is in his dad’s name, so they take the total amount of seed costs and divide based on acreage. They divide other expenses by entity, so while Rick pays for labor, Justin pays for fuel. Rick’s wife, Marty, handles the books, payroll and quarterly taxes.
5TH GENERATION? Like his dad, Cooper Lane, 9, loves a good ride in the combine.
At 68 and 37, Rick and Justin are both actively involved in labor, and they aren’t too concerned about tracking hours.
“Anytime something needs to be done, we do it. We don’t track it, but everybody’s happy,” Justin says.
No transition is imminent, but Justin says they’ve kicked around the idea of a limited liability company or corporation, and are meeting with legal help to see what might be best for the long term, both for taxes and succession planning.
Jim, Kyle and Steve Sheaffer
On this Dixon, Ill., family farm, the plans are built to change — and they will this year.
Jim and son Kyle Sheaffer began farming together nearly 20 years ago, as son Steve pursued a career with Compeer Financial and helped on the farm nights and weekends. In the early years, Kyle tracked his hours, and Jim paid him by the hour. As Kyle began renting ground, he traded labor for equipment.
“Then bookkeeping got too complicated,” Jim says, laughing. “We had three sets of books: his, mine and ours.”
So they switched to an operating partnership, Sheaffer Acres, with 70% in Jim’s name and 30% in Kyle’s. The partnership pays all the bills, including equipment repairs. It rents land from everyone, and it owns the grain. It does not own land or equipment.
The Sheaffers have long been Illinois FBFM customers, and they talked with their FBFM folks about whether to go with an LLC, corporation or partnership. At the time, the partnership was the simplest and most flexible.
“It had the least amount of strings attached,” Kyle explains. “It was less formal than a corporation.”
It’s also proved most flexible, as Steve left his Compeer position this year to join his dad and brother full time on the farm. Why now?
“Dad decided he was tired!” Steve says, laughing. With Jim, 73, ready to slow down and transition decision-making, it meant either Steve, 46, needed to come back, or Kyle, 42, needed to hire someone full time.
Photo courtesy of Wyffels Hybrids
PLANNED AND READY: The operating partnership Jim and son Kyle Sheaffer (right) formed years ago has proved the perfect structure to bring brother Steve (center) into the operation this year. “If you’re a successful and profitable operation, people will want to come back,” Steve says, reflecting on his years as a Compeer loan officer.
The partnership will still run on percentages, but they’ll evolve as appropriate.
It works well, Kyle adds, because the partnership doesn’t own land or machinery in the 3,000-acre operation. Labor is easy because he and Steve do most of the work. To date, Kyle owns a third of the equipment and Jim owns two-thirds, with Kyle’s being the newer portion. Equipment is on a handshake agreement, and they don’t track hours or dollars as closely. The only downside they see is commingled liabilities, so they carry extra insurance.
Sheaffer Acres is a single entity for the Farm Service Agency, and FBFM generates a report for the partnership, and does analysis for the partnership and for each individual.
Philosophically, Steve says they can make this work because it’s a profitable operation with a succession plan that everyone knows about. “I wouldn’t have come back if I didn’t know our estate plan,” he adds.
In his position as a loan officer with Compeer, Steve saw a lot of business structures. Some folks wanted to track every penny, and it got incredibly complicated. Others maybe needed to track more closely because either the parents were giving it all away, or the parents were making a killing and the son or daughter was slaving away. The Sheaffers tried to strike a happy medium.
“For the last 20 years, Dad and Kyle have built something that was structured so I could come back — and have the confidence to leave a job that I enjoyed,” Steve explains.
And at the end of the day?
“We all want Sheaffer Acres to be successful and profitable,” Steve says. “It’s money, time and commitment from all of us.”
Michael, Daniel and John Deuth
When Michael and Daniel Deuth graduated from college and came home to farm with their dad near Polo, Ill., they did what a lot of young people do: a few more hogs, a salaried wage, a little more rented ground here and there.
“I came back, and my brother and I rented 120 acres just north of us,” Michael says. “We split the income and fed corn to our pigs. My dad paid a weekly stipend, and we paid him equipment rent for what we used.”
Over time, that agreement evolved as they picked up more land. By 2010, Michael built a new hog-finishing building, and his dad and brother paid him rent on it.
Today, they’re all partners, but with differing percentages on their various enterprises: crops, hogs and cattle. “It’s a little more complex,” Michael acknowledges.
EVER EVOLVING: Along with brother Daniel (not pictured), Michael (left) and dad John Deuth have formed evolving partnerships for each of their crop and livestock entities.
The family markets about 25,000 pigs a year now, and dad John is easing out of that particular business. He owns 40%, and Michael and Daniel have 60% of that partnership.
On the crops side, about 1,800 acres, John owns 50% and the brothers each take 25%.
Cattle started out as a 4-H project for the boys, and now includes their sister Renee. They’re running 120 head of cows and finishing about 100 head of steers annually, and the splits aren’t as clean, but they make it work.
Michael says they use a separate checking account for each entity to cover expenses and receive income. Equipment and ground are still owned individually. Everyone helps on labor and equipment, and on individually owned ground, each owner pays expenses. They commingle grain at harvest but track bushels by weighing at the grain cart, and each owner markets his bushels.
And while they used to track equipment and hours, they are now equally invested and equally using it all. “Daniel and I buy everything 50-50 now, so if there’s ever a transition, we don’t have to buy out my dad,” Michael explains.
They also used to track hourly wages but went to a flat rate because “we hated keeping track of hours!” Their dad continued to pay extra rent to offset labor costs and continued that for the next few years.
“The big thing is to gain equity as a young person — to own more of the operation,” Michael says. He and Daniel bought the farm’s first GPS unit, and he says investing in smaller equipment like a chisel plow or auger wagon is a good way for a young person to build equity early on.
In the end, the Deuth family’s structure is flexible, it works for them, and it’s let them evolve in management and ownership over time. Or in other words, that “right” structure has been exactly right for them.