My wife and I milk 70 cows and farm 190 acres in northeastern Wisconsin. We are both turning 65 years old in December. We are wondering if we should sell our cows this fall, or wait and see if milk prices and cow prices go up next spring and sell then. After we sell the cows, we plan to continue to farm the land for a few years. We had no debt, but after the past three years, we now owe our creditors about $25,000. We are in good health, but we don’t see any real reason to keep milking with milk prices staying low. What are your thoughts?
Doug Hodorff: In any business, there comes a time to think about an exit plan. A good exit plan can be beneficial to retain as much money as possible. Making a decision based on low milk prices may not be the best plan. I would suggest you work with a tax person and figure out a course of action that is acceptable to you. This may also include a quick sale of some assets, or it may show you a different plan. Your main goal should be how you can retain the most dollars. You have built this business over many years, so try to protect your assets from taxes. I would support your idea to continue farming your land. This should help you with a good exit plan.
Sam Miller: There are several ways to analyze the choice of when to sell the herd. First, visit with your tax professional to estimate the tax liability of selling this year and next year. Then, estimate your expected net income for continuing to operate the dairy herd until your planned sale next spring. Next, prepare a plan for operating the business after selling the herd — what crops will you grow? Where will you market your crops? Should you rent the land out and sell the machinery? Will you raise heifers or steers in the existing facilities? How will you invest the sale proceeds for retirement income? These questions may seem daunting; meet with a financial planner, tax professional or Extension ag agent to assist in your planning and transition process. Good luck with your decision.
Katie Wantoch: Many farms have seen their working capital disappearing in the last few years. Working capital is the liquid funds that a business has available to meet short-term financial needs and the ability to pay your creditors. In essence, working capital provides the short-term financial reserves that a business needs to quickly respond to financial stress as well as to take advantage of opportunities. Michael Boehlje, Purdue University ag economist, suggests a goal of a 15% to 25% buffer, or working capital that is 15% to 25% of gross revenue or total expense.
Managing working capital involves maintaining adequate assets that can be easily converted to cash, and/or controlling the short-term drains on that cash resulting from debt service, capital expenditures or cash withdrawals. In today’s environment, it is extremely important to carefully monitor your use of cash. Techniques to preserve cash may be to lease capital assets or hire custom services; to reduce expenditures that don’t increase production; to improve yield through timely operations; and to sell at higher prices. Continue to monitor your working capital as you evaluate your plans for transitioning into the next stages of farming and retirement.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension agricultural agent specializing in economic development. 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].