I am a senior in high school and my grandpa has rented me 280 acres for this year — one-third/two-thirds. I am paying one-third of the expenses and he pays two-thirds. When we harvest, he gets 16 rows, I get eight rows. We will use his equipment, and he will help because he likes to work. We have been hauling manure to this farm. He has always paid me for my labor on his farm and feedlot. A couple questions I have are: Do I still get paid when we are hauling to this farm? How is the labor divided on a one-third/two-thirds lease?
Tom Kestell: The key to working with a relative — or anyone else, for that matter — is clear communication. First, have a serious discussion with your grandfather; then write things down and have a mutual agreement to the terms of the lease agreement. The second key to success is a bit of flexibility. You are young and in the learning stages. Your grandfather is a veteran of many years of farming, so lean on these different assets so you can learn from him, and supply youthful vigor and sweat equity to the relationship. Keep your business dealings on a professional level and separate from your personal relationship.
To your question about being paid for hauling manure to this farm, I don’t have enough information to comment intelligently. Where is the manure coming from, etc.? Keep things simple, and it will pay in the long term. Your grandfather is supplying land, machinery and expertise, and in return is only asking you to cover one-third of the input costs. This is a great opportunity for you.
Sam Miller: Congratulations on starting a farming enterprise. This is a great way to get started, where you provide part of the capital and your grandfather the other part, and you share in both the risk and the returns. To answer your question, let’s look at what each of you are providing to the business: Grandfather — land, equipment and two-thirds of the input costs, vs. you — labor and one-third of the input costs. Since labor is your primary contribution, you will likely be providing the bulk of it for this land. Have a conversation with your grandfather about expectations for each of you, but likely your return on labor will come from your share of the crop. Good luck this season.
Katie Wantoch: I am excited that your grandfather is providing you with this opportunity. There are several types of farmland lease agreements; it sounds like you’re in a crop-share arrangement. This means both the landowner and operator/farmer share income, costs, decisions, etc. There are advantages and disadvantages, such as sharing the risk due to low yields or prices, and profits from high yields or prices. This is a great way to learn about annual cropping practices and receive help making decisions, such as when to till, plant, make fertilizer or manure applications, and harvest.
To answer your question about labor, you and your grandfather will want to calculate the cost of having the manure applied (transportation and labor expenses) and the value of the manure. Or what would the comparable cost of fertilizer be? Because you are sharing the crop 67%-33%, fertilizer or manure should be shared the same as well, so both parties have economic incentives for optimal fertilizer use. A crop budget would also help you work out what is equitable between input costs.
Create farm business plan
I am going to be a junior in college next fall. My grandfather farms with my dad, and he is planning to retire a year after I graduate from college. We milk 180 Holstein cows and farm 550 owned acres in central Wisconsin. My dad bought 80 acres from our next-door neighbor three years ago and owes $300,000 on that land. That is our only debt. I am wondering if you think we should keep the farm the same size for a couple of years or if we should plan to increase our herd size by 120 cows and build another freestall barn? I think our double-10 parallel milking parlor could handle the additional cows. What are your thoughts?
Tom Kestell: I assume you are in an agricultural college. This would be an ideal opportunity for your professors and classmates to analyze the pros and cons of expansion. This analysis should include an evaluation of both current assets and the condition of existing facilities.
What is the availability of additional land in the immediate area? What is the condition of the farm equipment? Can it be used to operate more land? Where will the extra labor come from? Is your grandfather going to retire on paper or actually stop working? This is a big difference. What plans have been made to transition ownership from your grandfather to your dad and to you? And are there plans for transition to you in the future? Maybe these plans are already in place, but you are talking about a lot of assets, and who owns them will be a very important starting point.
Sam Miller: Sounds like it is time for a family meeting to discuss the farm transition, grandfather retiring, next generation coming back to the farm and a potential expansion. There are many topics to explore — what does retirement look like from financial, management and labor standpoints? Same question with you coming back to the farm.
Work with a dairy business consultant who has expertise in farm transition to assist in the planning process. This will take some time to understand each of the three generations’ goals in addition to understanding the financial implications of generational transfer, labor and management transition, and potential business expansion. Your Extension or farm technical college specialist can assist in identifying a consultant with this specialty. Spend the time planning to improve the chance for success for each of you. Good luck with this process.
Katie Wantoch: A dairy farm is a business. If you do not have a business plan, I would suggest you start there. A detailed business plan outlines your farm’s and family’s strengths, potential weaknesses, opportunities for the future and what threats your business might face. Your business plan should review historical progress made by your grandfather and dad, current cost of production, and then consider future expansion plans. Consult with your farm’s team of experts to assist you. Dairy farming requires large capital investments. Proper planning is key to any successful business venture, and all investments need to have an economic justification. Be sure all family members are on the same page by drafting a business plan together.
Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Extension agricultural agent specializing in economic development, Dunn County, Wis. 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].