Q: My parents, in their mid-fifties, are milking about 75 cows and own 240 acres. Dad rents extra crop ground for feed. Even during “high” milk prices, they barely covered costs. Any suggestions that might help a smoother transition out of dairying?

Mike Evanish: Optimistic or pessimistic outlook?
As I begin writing this answer, it’s been a very tough week for dairy — lost markets, lower advance milk checks, lenders bailing. All this while export events usually result in greater U.S. dairy demand.

If your parents believe that it’s only going to get worse, having a sale as soon as possible is worth exploring. Ever-dropping dairy prices will depress cow prices. But if they believe dairy is about to turn the corner to better times, holding out for those better times looks more appealing.

Anyone contemplating exiting the dairy business must take a hard look at their balance sheet. What’s the makeup of those assets? Corn silage, for example, isn’t as easy to sell as shelled corn. So, putting it through the cows by holding onto them a bit longer might be the best course. But if the silo is empty, the opposite is true.

Next, examine your liabilities. Will selling the cows provide enough cash to pay off your debt and pay taxes? If yes, great. But what if there’ll be debt remaining; especially a farm mortgage? How’ll that be repaid?

Planning to exit is no different than planning to enter the business. Your parents must meet with your accountant first, then your banker, then your family. Hopefully, the outcome will provide enough assets to maintain them through retirement.

George Mueller: It’s reality-check time
Your farm has been a blessing for your family — a wonderful place to teach growing children responsibility and good work habits. It has surrounded your folks and your siblings with an appreciation of nature’s beautiful miracles, whether it be a new-born calf or a corn seed that grows into a nine-foot-tall stalk.

Smaller dairies can compete, but only by keeping per-cow costs as low as those of larger dairies.

They must depend on custom operators instead of keeping expensive machinery sitting around. Even so, tough times will remain.

Your folks still have good productive work years left in them. So what do I suggest? Probably get out of dairy if it’s not returning a good living. Then perhaps get jobs in town and putter with some crops on weekends to keep your finger in farming. Perhaps rent the farm out and finally have time to take a vacation.

Perhaps sell the farm, move to town and the many opportunities there. People in town love to hire retired farmers. They know how to work, can shoulder responsibility and have creative ideas on how to move a business forward.

Glenn Rogers: There are options!
Plan, plan, plan. Plan for that transition! It won’t be smooth sailing, but planning makes it much smoother. Look at all alternatives, including staying in farming. We see all kinds of work opportunities, such as raising heifers, cropping, working for someone else, consulting, working for the Department of Agriculture, USDA, local conservation district, grant work, construction and more — even doing something entirely different. Farmers learn fast and know how to do almost anything. If they don’t, they’ll work hard and learn as fast as possible.

Transition planning should look at all reasonable alternatives five to 15 years down the road — not just for one to three years. The 50s is the time to pay down debt and rapidly put funds aside for retirement years. But that’s not always possible, especially in the dairy industry. That’s why it’s more important than ever to plan transitioning into retirement.

Plenty of books, articles and advisers are available on transitioning. Encourage your parents to read all they can, take all the “free” advice they can from professionals, attend all the free seminars they can and listen to individuals who’ve successfully transitioned.

They should talk with potential employers and others with contacts who may be seeking workers. Look first at those with whom they’ve done business.

Your parents also need to talk to each other, too. Unfortunately, all too often, it doesn’t happen until the crisis mode. Also, remember things can change. Health issues, opportunities and disasters can and do happen.   

Transitioning out of dairy, into what?
Here are a few more transitioning issues suggested by Glenn Rogers to discuss and plan:

• Where will you (dairy farmers) live, and what are you going to do? It’ll probably include some type of farming.

• What will it really cost to live without fluctuating milk prices, cattle sales, miscellaneous income and deductions? What’ll those income sources be — Social Security, retirement funds, farm income, jobs, consulting?

• When will you take Social Security? How much will it be, and who’ll actually retire first?

• Health insurance, Medicare costs and co-pays need to be planned out. The “Golden Years” are just that — watching the “gold” you worked hard to earn now go out for health care.

• What are you keeping, and what are you selling/giving away?

• What will living cost in those later years? Nursing homes can easily top $100,000 a year. Most farmers end up staying in their homes and near family who’ll help as long as possible.  

• Dad and mom need to connect with friends and family who also are in the transition phase. These relationships need to be encouraged into retirement.

• It’s important that your parents or partners discuss what they’re going to do. What dad wants to do may not be what mom wants to do. Differences need to be worked out now. Their hopes and aspirations need to be shared with all the children so all know what they have in mind and help make those dreams come true. Your turn will come when you, too, hit the “retirement trail”.  

• Finally, put that plan in writing or a computer document — for easy amending. Yes, it’ll change over time; it’s expected.

Farmers who “slow down” rarely transition out entirely. Yes, there are changes. But once it’s in the blood, farmers rarely entirely leave the dairy industry until well into later years.

Got a question? Our experts await!
Our Profit Planner panel would like to hear it. The panel consists of Michael Evanish, farm business consultant and business services manager of Pennsylvania Farm Bureau’s Members’ Service Corp.; Dale Johnson, Extension farm management specialist at University of Maryland (unavailable for this question); George Mueller, dairy farmer from Clifton Springs, N.Y.; and Glenn Rogers, University of Vermont Extension professor emeritus and ag consultant.

Send your questions to “Profit Planners,” American Agriculturist, 5227 Baltimore Pike, Littlestown, PA 17340. Or e-mail them to [email protected]. All are submitted to our panel without identification.