Last week I talked with two farmers who both expressed frustration over farmland. The first came from a middle-aged producer frustrated over the lack of opportunity he’s had to acquire or rent additional farmland. The second was from a retiring farmer frustrated because he hasn’t been able to find a young producer to take over his operation. More than anything he wants to give someone an opportunity.
The only thing these frustrations had in common was farmland. Any readers out there feel the same way?
The first producer is skeptical about new opportunities to obtain land. I can’t say I blame him. The trend is for landowners to hold on to land longer. Just look at the average landowner age trends over the past 40 years. (see chart).
In 1982, 12% of farmland was owned by those 74 years or older. By 2017 this amount grew to 34%. What is startling to me is only 15% of farmland is estimated to be owned by those 55 years of age or younger!
Land will change hands
There are nearly 300,000 acres of farmland per county in Iowa and Illinois. Imagine nearly one-third of the acres in your home county (the 34% owned by those 74 years or older) changing hands over the next 15 years. This is approximately 100,000 acres or 6,000 to 7,000 acres per county per year. Similar stats exist for other states. So, as a producer who may live in one of these states you will have an opportunity to control some of these acres. Are you ready?
Let’s take a closer look at how land changes hands.
A traditional strategy is passing the family farm business down to the heirs actively farming. If you’re not in line for that land, you might be skeptical about competing in a public auction environment. This will be a challenge given the competitive bidding environment today coupled with the fact that only a small percentage of land will actually be sold or rented by public venue.
Non-family farm successors
It is estimated 68% of aging farmers do not have children who farm and 51% have not identified a successor. Think about your own farming community and how many farmers there are without a successor. How can you align with them and propose an entrance and exit strategy which offers win-win advantages for both parties?
The cost of farm machinery is just one among many factors that has changed significantly since 1982. This is a limiting factor for many to gain an entry into farming. For this reason we see other methods for transitioning equipment such as lease-to-own arrangements and collaborating with others to own and share in the same piece of equipment inside an owning company such as a LLC.
In most cases these offer more tax advantages to the retiring farmer compared to the traditional strategy of lining up all the equipment and having a farm sale.
Purchasing land using a private contract was once a common strategy, but now we label it a non-traditional strategy since it’s used very little today. Instead of focusing on how to purchase the next farm at a public auction, what opportunities may there be to purchase a farm within your own family? Extended family? Long term landlords, neighbors who don’t have children who farm, or aging farmers without a successor? These are all examples of private purchases we facilitated just this year.
Land contracts offer advantages to both the selling and purchasing parties that are misunderstood by many.
Think outside the box
I wish I could go on and share other strategies we are seeing producers use, such as collaboration, flexible cash rent leases, new business enterprises, young producer purchase and leasing programs, etc. All of these have provided the opportunity for many producers to do or continue to do what they love: farm!
I will share examples of these in the future, but the intent of this post is to encourage thought to the potential opportunities in your own neighborhood. These will likely look much different than the traditional strategies our parents and grandparents used.
Downey has been helping farmers and landowners for the last 20 years with their family farm transition, leasing strategies, finances, and general land consultation. He is the co-owner of Next Gen Ag Advocates and an associate of Farm Financial Strategies. Reach Mike at Downey@farmestate.com.