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Evaluate, reflect before deciding who will harvest cropsEvaluate, reflect before deciding who will harvest crops

Agrivision: For many farms, multiple enterprises contribute to the whole farm business. Are you managing each enterprise in the best way possible?

August 15, 2023

8 Min Read
aerial view of cornfields and soybean fields with farms
FUTURE PLANS: There are resources available to help you evaluate your farm operation and decide how to manage the different enterprises. Consult with experts to determine what will work best for your farm and family. FARM PROGRESS

I am 38 years old, and I farm with my dad, who is 63 years old. We milk 130 cows and farm 350 acres, which we own. My dad is slowing down a bit, and I’m wondering if we would be better off concentrating on the cows and letting someone else handle the fieldwork. What is the best way for us to go about that? We owe $220,000 on our farm mortgage. The cows and machinery are free and clear of debt. Should we rent the land out on shares to a neighbor, hire a custom harvester to fill ag bags, or rent the land to our neighbor and purchase a custom total mixed ration from him?

Tom Kestell: From your questions, it seems to be a good time to evaluate in depth the different enterprises that make up your dairy operation. Many dairy producers, including myself, like to control all aspects of their dairy, whether it is necessary or not. Now would be an excellent time to evaluate not only the financial, but also the nonfinancial factors that give you the most satisfaction and nonfinancial returns from dairy farming. After this in-depth discussion and reflection with the involved people on the dairy, if the conclusion is to concentrate on the dairy cows, then a plan must be put into motion.

A detailed financial analysis and plan should be developed to ensure the new enterprise can not only survive but also prosper. This plan must be developed by your dad and yourself so it fits your unique situation and so you both fully understand the pros and cons of the new mode of operation.

In my opinion, your best option would be to rent your tillable land to your neighbor and purchase a custom ration in return. Does he do this for other dairies? Can you lock in quality standards, price and delivery times on a yearly basis or longer? Can you package the rental of your land and the disposal of your manure into one comprehensive package? Then overall costs and returns can be calculated so all parties involved have a positive outcome … doing what they do best.

Long-term working agreements must be a win-win for all involved to be sustainable. Seek out and consult with other dairy producers who are doing what you envision as your goals in the future. Look to avoid any pitfalls they have encountered, and take advantage of the advice they can give. Dairy farming in the future will be highly competitive and most likely have volatile price swings. Learn to use risk management tools to protect your livelihood and concentrate on short-term and long-term sustainability. Scrutinize all the details of your plan, and keep your mind and eyes open to the possibilities that exist. Always remember that if a plan doesn’t look good on paper, it probably is not a good plan. Good luck and good planning.

Sam Miller: You have mentioned several potential solutions for a change in labor on the farm. Start with your nutritionist for their opinion on your options for a change in your feed program. Next, investigate custom harvest options and complete a partial budget analysis comparing the cost for custom harvest vs. current practices. If you go the custom harvest route, you should be able to sell some of your equipment, paying capital gains tax but using the rest to pay down on the mortgage. I am not sure renting to the neighbor on shares would work, because you would not have the same amount of feed since they would take a share. The last option you mention is to rent to the neighbor and have him provide a custom ration – is this something he has experience providing or have you discussed it with him?

Bottom line, you have some homework to complete to evaluate these options. Tap into your advisers such as a nutritionist, Extension ag agent or technical college farm instructor for some assistance looking at the pros and cons of your options.

Katie Wantoch: It’s good to think about the future of your farm business and the next steps for all parties involved. Farms will often have many different enterprises that contribute to their whole farm business. For example, a dairy farm may have enterprises for milk sales, calf or finished cattle sales, grain sales, and hay sales. You can use an enterprise budget to help review historical information for each enterprise and to understand the income and expenses associated with each enterprise, how equipment or other capital is used in an enterprise, and ultimately, the profitability of each enterprise. Enterprise budgets can help you identify profitable vs. breakeven or losing enterprises.

What is your interest and what area would you like to specialize in? If you are planning to be with the farm business for many years, you should think about which enterprise you want to focus on. Then you and your dad can talk about the other enterprises and how best to meet those needs.

Son wants to farm

My 27-year-old son told me he wants to come back to the farm and eventually take it over. This surprises me because he has worked off the farm for seven years since graduating from college. I had no idea he was interested in farming. My wife and I milk 180 cows and farm 420 tillable acres in central Wisconsin. We’re both 58 years old. We have a mortgage of $250,000 on our house and buildings and 460 acres of land. Most of that is from expanding our dairy and upgrading our facilities to a freestall-parlor setup in 2014 when our son went off to college. Our cows average 27,000 pounds of milk. Our machinery is older but adequate for this size operation. My son says he has saved about $85,000. Where do we begin trying to figure out if this will work?

Tom Kestell: Life is full of surprises, some good and some not so good. In business, surprises should be avoided. That said, however, the simple fact is that young people are changing at a faster rate than their parents, in most cases. Your son is most likely a different man than the boy who went off to college, graduated and started his adult life. Is your son married? Does he have children? If not, these events in the future could quickly affect all of your lives. Before this surprise, what were your plans for your future? How will this alter or impact your plans?

The most important place to start is for everyone to put all their cards on the table and to evaluate individual goals and expectations so future surprises can be avoided. Do you think your son has the qualities and skills to carry on your legacy and ensure the future success of your farm? It is admirable that he has saved $85,000 since graduation, but as you know, this is a small, but important, contribution to the overall investment you and your wife have spent a lifetime making.

My suggestion is to start communicating and openly share your mutual goals — both personal and business goals. Do an honest appraisal of what each party is able and willing to give to the proposed future enterprise. After doing this, thoughtfully decide if going forward is a good surprise.

Sam Miller: This can be a good option for you and your wife from a succession standpoint. Start with a family meeting for the three of you and outline your personal and business goals. If you have alignment on these goals, start with a labor and management arrangement with your son. The last thing you would want is for him to work for a couple of years and then decide he doesn’t want to farm after all. You could agree in advance on forming an entity to bring him into the business at a future point in time. This could include some “in-kind” equity in the business to be granted after a period of time (three to five years), or when you think he’s contributed his equity.

This will take time to plan, but doing so upfront will improve the chances of success for all of you. A farm business consultant, Extension ag agent or technical college farm instructor can assist you in the goal-setting process as a facilitator. Good luck with your plans.

Katie Wantoch: University of Wisconsin Extension has an interactive program, Cultivating Your Farm's Future, that will be very helpful as you begin to explore this farm succession. Workshops, an online course and a workbook have been developed to assist farmers in exploring the three-step process of planning: Where are you now? Where do you want to be? How do you get there?

The first section, Where is the farm now?, asks you to take an inventory of all pieces of your farm and family, including history, farm enterprises, management, owners, employees, etc. This sounds easy, but you might be surprised at how long this process takes you and your wife, and how much you have shared with other family members.

Then it’s time to consider where your farm business currently stands, including the interpersonal dynamics. Not every farm and family experience the same tensions. They may also experience tensions at different times. Uncovering the potential tensions between you, your wife, and your son and addressing them early will help your farm business be more resilient when faced with change in the future. There’s lots of planning when considering a farm transition, so reach out to potential advisers for assistance.

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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