Author Topic: Taking over the Family Farm  (Read 6376 times)

~Ari~

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Taking over the Family Farm
« on: October 27, 2016, 10:05:53 AM »
Wanting to know if anyone here is a crop farmer or has experience taking over a family business?
My husband and I are 25 and 24 years of age and we are discussing our life time goals. Part of our 10 -20 year plan is to take over my Father in Law’s crop farm. My husband has been working on the farm since he was 8 years old, so he knows how much work it is and what it all entails. Currently, he is working on the farm part time while he works full time as a Mechanical Engineer making around $56,000/yr. The income he currently gets from the farm part time is anywhere between $0 - $20,000/yr, depending on crop prices and yields. I also work as marketing and communications assistant making $25,000/yr. We $11,000 left on an Ag Line of Credit. We plan to be debt free (besides our mortgage) this spring. We have $10,000 in retirement between the both of us and have about $3,000 in savings right now. If we take over the farm, he would quit his very predictable and comfortable job as a Mechanical Engineer to work on the farm full time. He would also like me to quit my full time job to do the bookkeeping and paperwork side of the business and be a stay at home mom.
My question is, is it possible for us to slowly take over the farm business debt free? I do not want to go back into debt at all, but farming can be so volatile year to year, which scares me! My husband has watched his father operate his whole life and has the mindset the debt for the farm business is acceptable, but I don’t want to live that way! We want to be thinking ahead as much as possible and take the appropriate steps to do this with as little as debt possible. We are currently in the process of learning more information from his father on how much he averages a year in wages, how much the farm is worth, and whether or not his dad plans to retire completely from the farm. Once we get more information, we know that will change things. But, we are trying to take the appropriate steps and get as much info as we can as we can. Thanks!

MLHoosier

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Re: Taking over the Family Farm
« Reply #1 on: October 27, 2016, 10:49:48 AM »
I am part of a family farm (row crops and livestock) as well. It can be a dicey situation because succession planning is not the strong suite of farmers. A couple questions:

1) Does your husband currently have ownership of land, equipment or "the business"? If so, what percentage?
2) Are your husband and your father-in-law in agreement on how to move forward?
3) How much acreage do you currently farm?
4) Does your father-in-law expect you to "buy in" either in stages or with a lump sum?
5) Is the farm ground owned, leased or a combination?

In general, I would suggest sitting down and ironing out the details so everyone has the same expectations and there are no surprises. Then, get everything in writing.

WranglerBowman

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Re: Taking over the Family Farm
« Reply #2 on: October 27, 2016, 11:03:01 AM »
MLHoosier has posted good questions.

What State is the farm in?
What crops do you all plant in rotation?
What crops do you all plan to work?

There are tons of variables that effect a sound decision to farm.  I live in a HCOL area in Maryland that is still fairly rural and I don't know of a single farmer who grows grains as a full time single source of income job...all those farms went under prior to and during the Great Recession.  If it is a grain farm only that's normally a part time job in my opinion.


~Ari~

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Re: Taking over the Family Farm
« Reply #3 on: October 27, 2016, 11:06:14 AM »
I am part of a family farm (row crops and livestock) as well. It can be a dicey situation because succession planning is not the strong suite of farmers. A couple questions:

1) Does your husband currently have ownership of land, equipment or "the business"? If so, what percentage?
2) Are your husband and your father-in-law in agreement on how to move forward?
3) How much acreage do you currently farm?
4) Does your father-in-law expect you to "buy in" either in stages or with a lump sum?
5) Is the farm ground owned, leased or a combination?

In general, I would suggest sitting down and ironing out the details so everyone has the same expectations and there are no surprises. Then, get everything in writing.

Thanks for the advice.
1) Currently, the only thing my husband owns is one tractor and a grain truck. The rest is under my FIL's name.
2) There has been small talk about taking over the farm, but there hasn't been an official agreement. They both have talked to a family lawyer about what would have to take place in order to switch it over, but that is as far as it has gone.
3) The farm in total is ~1,500 acres. My hubby farms ~200 that is strictly cared and leased by him, but he helps his dad with all the rest.
4) I think he expects us to buy it from him slowly or in increments, but I don't know that for sure or how fast he would want this process to take.
5) The land is both owned and leased (close to 50/50 each). There is debt on the owned land. I know that. We don't know by how much though.

~Ari~

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Re: Taking over the Family Farm
« Reply #4 on: October 27, 2016, 11:09:12 AM »
MLHoosier has posted good questions.

What State is the farm in?
What crops do you all plant in rotation?
What crops do you all plan to work?

There are tons of variables that effect a sound decision to farm.  I live in a HCOL area in Maryland that is still fairly rural and I don't know of a single farmer who grows grains as a full time single source of income job...all those farms went under prior to and during the Great Recession.  If it is a grain farm only that's normally a part time job in my opinion.

We are in Central MN. They plant corn, soybeans, oats, barley, and grow, bail and sell hay for local farmers. They also grow crops for seed (oats and barley)which brings in more than just crops. There are still a ton of farmers in our area, but most of them are the older generation (50-80 yrs of age).

MLHoosier

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Re: Taking over the Family Farm
« Reply #5 on: October 27, 2016, 11:34:11 AM »
Overall, it sounds like your situation is doable but it will be difficult for you and your husband to buy in at face value without debt. UNLESS, it's important for your father-in-law to keep the family business intact and he wants to cut you some breaks on the buy-in. If I had to guess, he probably has at least $500k-$1M in equipment alone for that amount of row crops.

I think the first thing that needs to happen is a sit-down between all parties involved to discuss everyone's expectations moving forward. Not vague ideas of the future, but goals and a clear path to get there. Then you can look at the financials of the business and see if you want to give it a go. It's only at that point that you can put together a game plan. Doing it debt free without help will be very difficult, especially depending on how much your FIL is currently leveraged. 

 
« Last Edit: October 27, 2016, 12:18:53 PM by MLHoosier »

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #6 on: October 27, 2016, 03:09:58 PM »
Posting quick to follow before I lose the thread, will read and respond. 

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #7 on: October 27, 2016, 03:15:04 PM »
Wanting to know if anyone here is a crop farmer or has experience taking over a family business?
My husband and I are 25 and 24 years of age and we are discussing our life time goals. Part of our 10 -20 year plan is to take over my Father in Law’s crop farm. My husband has been working on the farm since he was 8 years old, so he knows how much work it is and what it all entails. Currently, he is working on the farm part time while he works full time as a Mechanical Engineer making around $56,000/yr. The income he currently gets from the farm part time is anywhere between $0 - $20,000/yr, depending on crop prices and yields. I also work as marketing and communications assistant making $25,000/yr. We $11,000 left on an Ag Line of Credit. We plan to be debt free (besides our mortgage) this spring. We have $10,000 in retirement between the both of us and have about $3,000 in savings right now. If we take over the farm, he would quit his very predictable and comfortable job as a Mechanical Engineer to work on the farm full time. He would also like me to quit my full time job to do the bookkeeping and paperwork side of the business and be a stay at home mom.
My question is, is it possible for us to slowly take over the farm business debt free? I do not want to go back into debt at all, but farming can be so volatile year to year, which scares me! My husband has watched his father operate his whole life and has the mindset the debt for the farm business is acceptable, but I don’t want to live that way! We want to be thinking ahead as much as possible and take the appropriate steps to do this with as little as debt possible. We are currently in the process of learning more information from his father on how much he averages a year in wages, how much the farm is worth, and whether or not his dad plans to retire completely from the farm. Once we get more information, we know that will change things. But, we are trying to take the appropriate steps and get as much info as we can as we can. Thanks!

Farming 1500 acres completely debt free will take awhile.  With land prices where they are now, $$7,500-$9,000 down here in Iowa, it'll be easy to show a positive net worth on any paid for land.  However, the major debt will come with machinery purchases, any land purchases, and then most likely a line of credit, so you can get the crops in the ground.  There is cash rent to pay on the ground that you don't own, unless you share crop it (awesome if you do), seed costs, fertilizer, herbicide, machinery, insurance, hired labor, taxes, grain storage, etc.

Farming just isn't great at this current time with grain prices being less than specatcular, but if you can keep your expenses down, there is still profit to be made.  However, being debt free when you are going to be just starting out will be awfully, awfully tough.

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #8 on: October 27, 2016, 03:16:27 PM »
Also, there will be some hefty tax consquences for your father in law, if he just decides to sell everything off at once.  If this is going to happen for you over the next 10-15 years, I hope that you will be slowly buying into the operation, to lessen the tax burden that your FIL will have. 

Metric Mouse

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Re: Taking over the Family Farm
« Reply #9 on: October 27, 2016, 08:29:59 PM »
Posting to follow. Most of the points I was about to make have already been stated.

chrisgermany

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Re: Taking over the Family Farm
« Reply #10 on: October 27, 2016, 11:02:14 PM »
Are there any siblings to expect an estate or pay out?

~Ari~

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Re: Taking over the Family Farm
« Reply #11 on: October 28, 2016, 08:43:22 AM »
Also, there will be some hefty tax consquences for your father in law, if he just decides to sell everything off at once.  If this is going to happen for you over the next 10-15 years, I hope that you will be slowly buying into the operation, to lessen the tax burden that your FIL will have.

Thanks for your input and advice. There are definitely a lot of different factors and information that we need to know more about as we move forward. But, by the way I know they operate and by small conversations, it sounds like my FIL wants to sell it off slowly, which would help everyone out greatly finance and tax wise - we think. Our BIL is also an estate planning attorney and has been giving us advice on what the best steps are to take, but it just seems like a scary process to me. I haven't grown up in the farm industry, so I am not accustom to the violatile income that it brings. I guess that's the biggest part that we are worried about right now.

NV Teacher

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Re: Taking over the Family Farm
« Reply #12 on: October 28, 2016, 09:12:41 AM »

I haven't grown up in the farm industry, so I am not accustom to the violatile income that it brings. I guess that's the biggest part that we are worried about right now.

We farmed some growing up and I have a couple of family members that farm now.  My mom always says that farmers are some of the biggest gamblers on the planet.  Much of their success or failure is tied to things they can't control like weather, bugs, costs, crop prices, etc.  It's a great life for the right people but you can't be faint of heart.

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #13 on: October 28, 2016, 12:37:59 PM »
Also, there will be some hefty tax consquences for your father in law, if he just decides to sell everything off at once.  If this is going to happen for you over the next 10-15 years, I hope that you will be slowly buying into the operation, to lessen the tax burden that your FIL will have.

Thanks for your input and advice. There are definitely a lot of different factors and information that we need to know more about as we move forward. But, by the way I know they operate and by small conversations, it sounds like my FIL wants to sell it off slowly, which would help everyone out greatly finance and tax wise - we think. Our BIL is also an estate planning attorney and has been giving us advice on what the best steps are to take, but it just seems like a scary process to me. I haven't grown up in the farm industry, so I am not accustom to the violatile income that it brings. I guess that's the biggest part that we are worried about right now.

If you can set everything up to purchase on contract, it'll help keep your costs at a minimum (versus paying 5-7k an acre outright, assuming that price in your neck of the woods...I could be way wrong), along with the expenses that come with purchasing all the necessary machinery, or hiring parts of planting and harvest out.

We farm about 1800 acres of corn and soybeans, usually heavy on the corn, 1000-1100 acres a year, and the rest beans.  I work with farmers on a daily basis as an insurance agent in a rural area, so I can tell you with great certainty that with corn input costs, for an entire year, is going to run about $500-$700 an acre - that's north of $650k every year, just to plant and harvest the crop.  Now, there are some guys that have that cash from the good years (2008-2013) and don't have to borrow a ton, but that's usually borrowed on a line of credit, that is paid off every year, which is why farming debt free is so tough.  Those guys that have the cash have paid for ground, or inherited ground, and don't have the land costs involved.  Hell, our cash rent that we pay on 1000 acres of ground (the rest is owned or crop shared) runs $225,000 a year alone, that's just the funds to get the chance to farm, not seed, not machinery, not insurance, etc. 

By the way, I'd recommend you guys going and meeting with your FIL's crop insurance agent, as it's VERY useful to have, and it's something that any farmer needs to know how it works.  There are guys that don't carry it, but they are risking a lot every year.  Since crop insurance can now be insured as revenue, versus bushels an acre, it can help you minimize losses if you have a crop failure, or a less than average crop.  Feel free to PM me with any questions.

**I should say...I'm a hired hand, tractor driver, persay.  I have no capital outlay involved in the operation at this point, but I have created a breakeven tool for our farm customers that allow them to calculate their yearly breakevens based on input costs, projected yields, and projected pricing.  So, I've had a lot of experience in talking about input costs, which is some of what I have mentioned above.

SU

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Re: Taking over the Family Farm
« Reply #14 on: October 29, 2016, 06:26:18 AM »
Say you find out that buying the land and business will cost $2.5 million.

Ask yourself, if someone gave me $2.5 million, would I use that money to buy this farm?

FIL, family business, someone's life work... make sure you take time away from all of those concepts and think about whether farming is really what you want to do.

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #15 on: October 31, 2016, 01:52:03 PM »
I'd be interested to know how many total owned acres there are in the operation.
As you can see, those that don't know much about farming, or didn't grow up with land in the family, see it simply as dollar signs.  One sale, one pay day, and you don't have to worry about it.  It is something to consider, but on the flip side, there should be steady income off of the ground, depending on what is owed on it, and once it's paid off, it's a cash cow.  Even when you decide to retire from farming and rent it out, you'll make a lot of money off of it, year after year, after year, after year...

Fishindude

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Re: Taking over the Family Farm
« Reply #16 on: October 31, 2016, 02:39:12 PM »
See this scenario frequently in rural Indiana.  In reality, there is no way in heck you can just walk into farming unless you are sitting on a huge sum of money.  Don't know what ground is worth in your area, but I wouldn't be surprised if not at least $5,000 per acre.   If the family farm is 1500 acres, to jump into half ownership requires $3.75 mil for the land, plus equipment, plus a hefty bankroll to operate on.

In reality, the only practical way to get the next generation into ownership of the farm requires that dad gets creative with his CPA and attorney and starts gifting as much as possible, sell you the ground at bottom dollar price, over-pay you for your work on the farm so you can cover the mortgages, let you use his equipment, bins, etc, for free, work off his line of credit, etc., etc.   It's a great opportunity and doable, but you need to get the professionals involved and put everything down in contract form.  If you have good relationships and trust with all parties, go for it.   Farming full time is a really neat occupation and must be very rewarding.

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #17 on: October 31, 2016, 03:02:22 PM »
See this scenario frequently in rural Indiana.  In reality, there is no way in heck you can just walk into farming unless you are sitting on a huge sum of money.  Don't know what ground is worth in your area, but I wouldn't be surprised if not at least $5,000 per acre.   If the family farm is 1500 acres, to jump into half ownership requires $3.75 mil for the land, plus equipment, plus a hefty bankroll to operate on.

In reality, the only practical way to get the next generation into ownership of the farm requires that dad gets creative with his CPA and attorney and starts gifting as much as possible, sell you the ground at bottom dollar price, over-pay you for your work on the farm so you can cover the mortgages, let you use his equipment, bins, etc, for free, work off his line of credit, etc., etc.   It's a great opportunity and doable, but you need to get the professionals involved and put everything down in contract form.  If you have good relationships and trust with all parties, go for it.   Farming full time is a really neat occupation and must be very rewarding.

This, so much this. 

By the way, this is my most favorite thread on MMM.  Pertains to probably less than 5% of the board members, but is right up my alley.  I love it!

The hard part about selling dirt is that you'll never get it back.
Let's just use some broad numbers - say they own 500 acres, and cash rent is $200 an acre.
500*200 = $100,000 in rental income, minus paying property taxes.  If this land is passed from generation to generation, the return on the land will vastly out earn the quick cash of selling it and paying the capital gains taxes. 


SU

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Re: Taking over the Family Farm
« Reply #18 on: October 31, 2016, 03:32:15 PM »
The hard part about selling dirt is that you'll never get it back.

Or the best part, depending on your point of view. I hope there is room for all the opinions on this topic.

Let's just use some broad numbers - say they own 500 acres, and cash rent is $200 an acre.
500*200 = $100,000 in rental income, minus paying property taxes.  If this land is passed from generation to generation, the return on the land will vastly out earn the quick cash of selling it and paying the capital gains taxes.

Only if the land is worth less than $2.5 million (after tax) (assuming 4% annual growth in the stock market, which is conservative). There are plenty of other, less risky, ways to earn rental income from capital which can also be passed from generation to generation, are less affected by weather, international trade, government policy and climate change, and are more easily divisible between people with different preferences about how to invest.

Fishindude

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Re: Taking over the Family Farm
« Reply #19 on: October 31, 2016, 06:26:57 PM »
From the math I've done (I own two farms), if you pay cash for decent ground, then cash rent, you can net about 3.5% annual return on the investment.  Not great, but very, very safe, better than any CD, investment is very unlikely to go down in value, it can be sold rather quickly, and you won't ever get ZERO or NEGATIVE return which is a distinct possibility in stock market.

CU Tiger

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Re: Taking over the Family Farm
« Reply #20 on: October 31, 2016, 09:38:35 PM »
We have $10,000 in retirement between the both of us and have about $3,000 in savings right now. If we take over the farm, he would quit his very predictable and comfortable job as a Mechanical Engineer to work on the farm full time. He would also like me to quit my full time job to do the bookkeeping and paperwork side of the business and be a stay at home mom.

Have you ever watched The Farmer's Wife? It is a fantastic documentary about a farm couple in middle America. Check it out.

What made me think of this is your comment about you quitting your job to also work the farm, doing business and paperwork. Juanita, the wife in the movie, wanted to be a veterinarian when she was young. Daryl, the husband, convinced her to skip college, marry him, start a family, and work on the farm. I believe he loved her and was afraid that if she got an education she would not want to be a farm-wife.
This couple struggles and struggles to make things work. He farms and works at the local metal fabrication shop to make extra dollars. She cleans houses. They accept food stamps in bad times, which just about kills them from mortified pride. The stress, the constant worry about money, the fear of losing everything...in the end, it grinds them down.

All the time I was thinking that if Juanita had a college education and a career that brought in real money, like being a large animal veterinarian, they might have made it. My Grandpappy farmed and my Grandma was a schoolteacher and later, the secretary to the Savings and Loan President. A bad year on the farm was still sucky, but farm insurance and Grandma's job meant they were okay.

You all are young and can plan, but be aware that quitting both jobs to try to make farming the family business can be risky.

SU

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Re: Taking over the Family Farm
« Reply #21 on: November 01, 2016, 02:40:48 AM »
From the math I've done (I own two farms), if you pay cash for decent ground, then cash rent, you can net about 3.5% annual return on the investment.  Not great, but very, very safe, better than any CD, investment is very unlikely to go down in value, it can be sold rather quickly, and you won't ever get ZERO or NEGATIVE return which is a distinct possibility in stock market.

I've seen plenty of circumstances where farms make zero or negative returns. That can occur with any asset when you don't have control over the timing of the sale: illness or death of the owner, uninsured medical emergency, divorce, or changes to another part of your portfolio that require you to suddenly access equity in land.

It's also difficult to sell land quickly in some cases, for example, after a couple of years of drought or depressed commodity prices, when a lot of land comes on the market.

Even if you only consider the case where you own the land and lease it out, there are deductions from rental income that can vary widely, for example, the costs of repairing flood damage, management of erosion or loss of arable land due to salinity.

Farms aren't in a special category by themselves: the normal rules of investment still apply. Having the majority of your money invested in farm land means that you don't have a diversified portfolio and you have very little liquidity. You can insure against this by having a strong portfolio of non-farm assets and, preferably, a partner with a career off the farm, but land as an investment is no better or worse than any other option.

Fishindude

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Re: Taking over the Family Farm
« Reply #22 on: November 01, 2016, 07:02:33 AM »
I've seen plenty of circumstances where farms make zero or negative returns. That can occur with any asset when you don't have control over the timing of the sale: illness or death of the owner, uninsured medical emergency, divorce, or changes to another part of your portfolio that require you to suddenly access equity in land.
I'm talking about ground owned by yourself, free and clear, then cash rented to a farmer to do the farming.   It's a guaranteed income unless your farmer goes broke, so you hook up with a reputable farmer.

It's also difficult to sell land quickly in some cases, for example, after a couple of years of drought or depressed commodity prices, when a lot of land comes on the market.
Not really, decent farm ground can easily be sold within 6 -12 months if you don't insist on a ridiculous price.  In most cases you could approach nearby farmers and eliminate a realtor.

Even if you only consider the case where you own the land and lease it out, there are deductions from rental income that can vary widely, for example, the costs of repairing flood damage, management of erosion or loss of arable land due to salinity.
This all has to be considered when you make your purchase, but modern plastic field tiles pretty much last forever and require darned little maintenance.

You can insure against this by having a strong portfolio of non-farm assets and, preferably, a partner with a career off the farm, but land as an investment is no better or worse than any other option. [/b] A partner with a career off the farm is a good idea, particularly if they can get access to some good health insurance, a good 401K program, etc.  These are things many self employed farmers don't have access to.  Land isn't too darned bad of an investment.  My original 100 acres has kicked me back approx. $10K per year for the last 26 years, was purchased for $750 per acre and is now worth roughly $7000 per acre.   




TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #23 on: November 01, 2016, 01:39:59 PM »
The hard part about selling dirt is that you'll never get it back.

Or the best part, depending on your point of view. I hope there is room for all the opinions on this topic.

Let's just use some broad numbers - say they own 500 acres, and cash rent is $200 an acre.
500*200 = $100,000 in rental income, minus paying property taxes.  If this land is passed from generation to generation, the return on the land will vastly out earn the quick cash of selling it and paying the capital gains taxes.

Only if the land is worth less than $2.5 million (after tax) (assuming 4% annual growth in the stock market, which is conservative). There are plenty of other, less risky, ways to earn rental income from capital which can also be passed from generation to generation, are less affected by weather, international trade, government policy and climate change, and are more easily divisible between people with different preferences about how to invest.

Yeah, owning ground isn't near as risky as you think it may be.  There are very few issues that are going to stop land from being a profitable investment, year after year.  Fishindude hit on them, and did a great job with it.  Commodity prices have been in the crapper for 2, going on 3 years, and land has held it's value much better than anyone thought it would, and rents have done the same. 

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #24 on: November 01, 2016, 01:44:33 PM »
I've seen plenty of circumstances where farms make zero or negative returns. That can occur with any asset when you don't have control over the timing of the sale: illness or death of the owner, uninsured medical emergency, divorce, or changes to another part of your portfolio that require you to suddenly access equity in land.
I'm talking about ground owned by yourself, free and clear, then cash rented to a farmer to do the farming.   It's a guaranteed income unless your farmer goes broke, so you hook up with a reputable farmer.

And if your farmer goes broke, they'll be a line down your driveway, and around the corner, of guys that want to rent it

It's also difficult to sell land quickly in some cases, for example, after a couple of years of drought or depressed commodity prices, when a lot of land comes on the market.
Not really, decent farm ground can easily be sold within 6 -12 months if you don't insist on a ridiculous price.  In most cases you could approach nearby farmers and eliminate a realtor.

And if you can't find a buyer, land auctions are a simple way to get it sold as well.  Yes, you give a percentage to the auctioneer, but you aren't going to realize any discount on your land price by just auctioning it off - you'll still collect a nice price.

Even if you only consider the case where you own the land and lease it out, there are deductions from rental income that can vary widely, for example, the costs of repairing flood damage, management of erosion or loss of arable land due to salinity.
This all has to be considered when you make your purchase, but modern plastic field tiles pretty much last forever and require darned little maintenance.

Yes on tile.  If you have highly erodible soil, use filter strips or waterways, which do not take much for management, after they are built up and seeded.

You can insure against this by having a strong portfolio of non-farm assets and, preferably, a partner with a career off the farm, but land as an investment is no better or worse than any other option. [/b] A partner with a career off the farm is a good idea, particularly if they can get access to some good health insurance, a good 401K program, etc.  These are things many self employed farmers don't have access to.  Land isn't too darned bad of an investment.  My original 100 acres has kicked me back approx. $10K per year for the last 26 years, was purchased for $750 per acre and is now worth roughly $7000 per acre.

Purchased it for $75,000, and now valued at $700k, very nice.  Quite an increase in 26 years, and much of that had to deal with the price run up we had in the mid 2000's.  Not only did you see an appreciation in your asset, but you got to collect cash rent on top of it at the same time. 

Oh, and the saying goes something like....."Behind every successful farmer is a wife who works in town and has benefits :)


SU

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Re: Taking over the Family Farm
« Reply #25 on: November 01, 2016, 06:49:28 PM »
There's no shortage of examples of people who have made a satisfying living out of farming. There's also no shortage of people who have had very different, less successful experiences.

But has anyone ever, in the history of this forum, posted details about their assets, sought advice, and been told, 'Ma'am, you have all these shares and real estate, but you are hopelessly underexposed to farming. I suggest that you buy some land in Iowa immediately.'

In my experience, as a farmer, our community has a massive blindspot: we don't consider the opportunity cost of having our money in land. There are some great stories here from people who have done really well out of farming; there are probably also stories elsewhere on the forum  from people who got lucky speculating on the stock exchange, buying lotto tickets, or marrying the right person. However, just because it worked out for some people, doesn't mean it will work out for all people.

Farm land, as an asset class, underperforms compared to the stock market and urban real estate. That's the aggregate view: your experience might be different, but is it more likely that a newcomer to the market will have your experience, or something closer to the mean?

Metric Mouse

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Re: Taking over the Family Farm
« Reply #26 on: November 01, 2016, 07:38:50 PM »
There's no shortage of examples of people who have made a satisfying living out of farming. There's also no shortage of people who have had very different, less successful experiences.

But has anyone ever, in the history of this forum, posted details about their assets, sought advice, and been told, 'Ma'am, you have all these shares and real estate, but you are hopelessly underexposed to farming. I suggest that you buy some land in Iowa immediately.'

In my experience, as a farmer, our community has a massive blindspot: we don't consider the opportunity cost of having our money in land. There are some great stories here from people who have done really well out of farming; there are probably also stories elsewhere on the forum  from people who got lucky speculating on the stock exchange, buying lotto tickets, or marrying the right person. However, just because it worked out for some people, doesn't mean it will work out for all people.

Farm land, as an asset class, underperforms compared to the stock market and urban real estate. That's the aggregate view: your experience might be different, but is it more likely that a newcomer to the market will have your experience, or something closer to the mean?

I think that farming is one of those things that transcends the numbers. Per hour it's a horrible way to make a living. As an investment, at the 'farmer' level it's suboptimal. The risks are high and the reward is relatively low, monetarily speaking.  Much like any small business, I suppose.

The fascinating thing is people still want to do it. They want to put in the long hours and the hard work and live off the land. And thank god they do, as agriculture is one of the backbones of modern society - having a huge supply of food that supports the entire population, grown by a fraction of the population, is pretty damn amazing, and frees everyone up to do everything else that makes modern life as awesome as it is. 

While few might study the numbers and come away suggesting more people should go into farming purely as an investment, I think this is a great discussion for someone who wants to farm, but do it in a financially intelligent way.

SU

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Re: Taking over the Family Farm
« Reply #27 on: November 02, 2016, 02:43:46 AM »
Quote
In my experience, as a farmer, our community has a massive blindspot

Quote
I think that farming is one of those things that transcends the numbers.

q.e.d.


With This Herring

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Re: Taking over the Family Farm
« Reply #28 on: November 02, 2016, 09:32:37 AM »
I have no interest in ever being a farmer, but I find this fascinating.  Posting to follow.

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #29 on: November 02, 2016, 10:53:29 AM »
There's no shortage of examples of people who have made a satisfying living out of farming. There's also no shortage of people who have had very different, less successful experiences.

But has anyone ever, in the history of this forum, posted details about their assets, sought advice, and been told, 'Ma'am, you have all these shares and real estate, but you are hopelessly underexposed to farming. I suggest that you buy some land in Iowa immediately.'

In my experience, as a farmer, our community has a massive blindspot: we don't consider the opportunity cost of having our money in land. There are some great stories here from people who have done really well out of farming; there are probably also stories elsewhere on the forum  from people who got lucky speculating on the stock exchange, buying lotto tickets, or marrying the right person. However, just because it worked out for some people, doesn't mean it will work out for all people.

Farm land, as an asset class, underperforms compared to the stock market and urban real estate. That's the aggregate view: your experience might be different, but is it more likely that a newcomer to the market will have your experience, or something closer to the mean?

Oh, I agree with you on there being a large, massive blindspot, when it comes to farmers and land.  But, land investors are still purchasing land, or getting back into purchasing land now that we've had a 20-25% slide in land prices (here in Iowa).  I think there is still some price slide to come, just looking at commodity prices.  Also, since you sound like you farm, you know what is going on right now with commodity prices, expensive machinery (which dropped rapidly in value in the last 3 years), and the bleak outlook that those that are over leveraged have at this time.  For those farmers who though $7 corn and $15-$18 beans were here to stay, they are going to find themselves in a tough spot trying to pay for $12k an acre land that they had purchased in the last 5 years.

The reason I look at this situation different is it is family land, not an operation trying to grow by purchasing land from other entities.  If they are lucky enough to get a purchase agreement worked out over the next 10-15 years, they should have a very good chance at being successful.  Buying the land and machinery on contract, from family, is about the ONLY way anyone is going to get started farming in this current environment. 

Back to the blindspot...
The guys that are trying to farm on economies of scale, picking up acres to lessen their "cost per acre" of their shiny green equipment, large storage sites, and multiple semi's, are going to be hard up.  These farmers, as a generalization, have probably lost more in equity in the last 3-5 years then most on this board have made in money in the same time frame.  That is simply because from 2008-2012/2013, there were times where farmers could gross over $1,000 an acre of land.  And, like most farmers, they spent a lot of money trying to alleviate paying insane amount of taxes at the year end.  However, they'd do it on loans instead of paying 100% cash for the equipment, which has them in the precarious position of having a lot of land and machinery debt, with commodity prices that are in the shitter. 

I'm just glad the one farmer I work for isn't overly leveraged, has a fair chunk of owned and crop shared land, and doesn't pay exuberant cash rents, which still allows us to be extremely profitable.  I do foresee quite a few auctions coming in the next year or two unless something drastically changes on the commodity side of things.  Whether that be high exports (we are on record setting pace), or weather issues here or abroad. 

TheInsuranceMan

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Re: Taking over the Family Farm
« Reply #30 on: November 02, 2016, 10:56:06 AM »
There's no shortage of examples of people who have made a satisfying living out of farming. There's also no shortage of people who have had very different, less successful experiences.

But has anyone ever, in the history of this forum, posted details about their assets, sought advice, and been told, 'Ma'am, you have all these shares and real estate, but you are hopelessly underexposed to farming. I suggest that you buy some land in Iowa immediately.'

In my experience, as a farmer, our community has a massive blindspot: we don't consider the opportunity cost of having our money in land. There are some great stories here from people who have done really well out of farming; there are probably also stories elsewhere on the forum  from people who got lucky speculating on the stock exchange, buying lotto tickets, or marrying the right person. However, just because it worked out for some people, doesn't mean it will work out for all people.

Farm land, as an asset class, underperforms compared to the stock market and urban real estate. That's the aggregate view: your experience might be different, but is it more likely that a newcomer to the market will have your experience, or something closer to the mean?

I think that farming is one of those things that transcends the numbers. Per hour it's a horrible way to make a living. As an investment, at the 'farmer' level it's suboptimal. The risks are high and the reward is relatively low, monetarily speaking.  Much like any small business, I suppose.

The fascinating thing is people still want to do it. They want to put in the long hours and the hard work and live off the land. And thank god they do, as agriculture is one of the backbones of modern society - having a huge supply of food that supports the entire population, grown by a fraction of the population, is pretty damn amazing, and frees everyone up to do everything else that makes modern life as awesome as it is. 

While few might study the numbers and come away suggesting more people should go into farming purely as an investment, I think this is a great discussion for someone who wants to farm, but do it in a financially intelligent way.

I don't think anyone should go into actual farming as an investment, but owning land as an investment can be profitable.  Others have mentioned that the return on your investment is less than the market usually returns, but it is one of the safest places to stick money.  Even with crappy commodity prices, farmers are still going to want to increase their land base, and will still pay a solid chunk of money for rented acres, which returns profit (if you bought the land at a reasonable price).