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Consider options for farm expansionConsider options for farm expansion

Agrivision: Be sure all family members involved are on the same page as you plan your farm’s succession.

September 19, 2023

7 Min Read
Farmland, barns, silos
IN WRITING: Depending on the succession plan you decide to execute, be certain to have a written agreement so both you and your son know the expectations. Farm Progress

My wife and I are both 64 years old and our youngest son is 27. He works full time for a neighbor, who milks 400 cows. My wife and I milk 80 cows and farm 270 acres. The farm is paid for, and we have a $50,000 machinery loan. Rather than expand our farm to 200 cows and form a partnership with our son, I am thinking about farming two or three more years, retiring, and selling the cows and machinery to him. After he has had a few years to pay off the cows and machinery, I would like to sell the farm to him. My wife thinks it is a better idea to expand now and bring our son into the operation. Our son says he is eager to return to the home farm and start working and taking on some ownership, but he isn’t sure what the best plan is for expansion. What are your thoughts?

Tom Kestell: You have many questions and not many clear answers. At this point, all of your futures depend on making the right decisions. My advice would be to seek out and hire a farm consultant to meet with your whole family, and lay all of your thoughts and aspirations on the table so that they can be discussed, evaluated and analyzed. The entire family needs to understand what is possible and what is not.

Can the farm enterprise generate enough profit for your son to pay off the cows and machinery? You talk about expansion and retirement taking place at the same time. Where will the extra labor come from and where will the needed management come from? Your son’s role will have to quickly change from a laborer to an owner-manager. Is he up to this transition? I am quite certain that failing to plan is a recipe to fail. Examine all the possibilities, and be realistic and imaginative. But it is a must for all to be on the same page.

Sam Miller: The good news is you have options, you are in a secure financial position, your son is interested in taking over the farm, and you have time to transition both the management and assets of the business. Meet with a dairy business consultant to work on personal and business goals for you and your wife, and separately for your son. Work on reconciling these goals to chart a succession plan.

Your consultant can assist in exploring options to expand now vs. having your son buy the cows and machinery without expansion. You may find it necessary to add income to allow your son to buy you out and be able to cover his living expenses. Depending on the plan you decide to execute, be certain to have a written agreement so both you and your son know the expectations. Good luck planning for succession.

Katie Wantoch: It sounds like you and your wife are on different pages for the future of your farm business and retirement. Take a step back before you consider options for farm expansion. University of Wisconsin Extension’s Cultivating Your Farm’s Future workbook includes worksheets that could assist in this process. You and your wife should review the pages titled What Does Your Future Look Like?

These worksheets ask you to envision your personal future and that of your farm business. In three, five or 10 years from now, what are you doing? Where do you live? What are your daily responsibilities? What does your farm business look like (size, managers, enterprises)? How involved are you in the daily management decisions of the farm? How involved are you in the long-term decisions for the farm? I have found that most husbands and wives are not in sync with their future visions, and this often causes friction. You have time to discuss and decide what is best for both of you and your son for the future.

Finding a new tenant

My wife and I quit farming 15 years ago and started working at jobs in town. Since then, we’ve rented our 330 tillable acres in central Wisconsin to a neighbor. A couple of weeks ago, he told me he plans to sell his machinery this winter and retire from farming. How do we go about finding a new tenant? Since we quit farming, there has been a lot of turnover in who farms the land near us, and we don’t know the farmers that well any more. Many are younger than we are. Is it appropriate to talk to a neighbor who does a good job and ask him if he’s interested, or do we start telling everyone that we are looking for a new tenant? We are asking $190 an acre, which is typical in our area. Or should we talk to our banker and see if there is someone he suggests we rent our land to? Please advise.

Tom Kestell: There are several reliable sources of potential custodians of your land. I think the quality care of your asset should be your top priority. Who will take care of the proper conservation practices, crop rotation, maintenance and enhancement of future fertility of your land now and into the future should guide you in choosing an operator you can trust and cooperate with to maintain and enhance your valuable asset. Bankers, local agronomists and Farm Service Agency officials should all be able to give you input into viable candidates you can work with long term to protect your investment.

Always try to remember that a long-term agreement must be a win-win for all involved. I would set up a plan where the potential renter-operator has input and where you as the owner has a vision and compatible goals that are both achievable and measurable. I would also look at this as an opportunity to give a leg up to a younger but competent individual to help advance his career. We will all need new blood in our local communities to keep them vital and thriving. Take your time to set goals; make a plan for how to get there, and then set your plan into motion.

Sam Miller: There are several options for you to find a new tenant to rent your farm. Start by asking your current tenant if he has any suggestions — he would likely know other farmers in the area who are good stewards of the land. You could also reach out to your local crop input provider, as they might have a good idea of potential tenants. Lastly, you could reach out to your banker or Extension ag educator; they may also have some suggestions.

When you do find a new tenant, be sure to put the rental agreement in writing with an expectation for fertility practices, maintenance of fences and ditches, payment terms, and a renewal date. Your attorney can assist in drafting a lease agreement. Good luck finding a new renter.

Katie Wantoch: You and your wife should talk to several farmers who may be interested in renting your farmland. You don’t know who might be interested until you ask around. I suggest you prepare in advance for your meetings. Your goal might be to find a tenant, but you should also make sure you and this farmer agree about how you would like the land taken care of, such as crop rotation, fertilization, conservation practices, etc. Sometimes the rental price is not as important as finding a tenant with whom you have things in common and feel comfortable with leasing your farmland.

It is a good idea to keep notes during your conservations, so you remember clearly what was discussed with a possible new tenant. To avoid any misunderstandings, farmland lease agreements should be finalized in writing and signed by each person. This helps to protect both sides and alleviates confusion. Documenting the details of an agreement eliminates any misinterpretations.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, statewide Extension farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

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