Ensuring their farms’ future

Four farmers share transition experiences

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MADISON, Wis. — Transferring a farm from one generation to the next is a process that takes time, planning and commitment from both sides.

This was the topic of a panel Oct. 3 at World Dairy Expo in Madison entitled, “Securing the Future: Lessons in Dairy Farm Transitions.” Four dairy farmers shared experiences.

Moderated by Bruce Vande Steeg of Bridgeforth LLP, panelists included Ben Smith of Cool Lawn Farm in Virginia; Myron Czech of New Heights Dairy LLC in Minnesota; Hannah Lansing of J & K Dairy LLC in Washington; and Steve Ohlde of Ohlde Family Farms in Kansas.

Smith’s family milks 780 cows and farms 3,000 acres. The Ohlde family milks more than 4,000 cows on six sites in two states and farms 5,000 acres. The Czechs milk 550 cows and farm 1,200 acres.

Czech’s first transition occurred 18 years ago when he brought his son into the operation. The two remain partners and purchased another farm over the past 18 months.

Ohlde and his wife transitioned the farm to two of their sons in 2007 and to another son a few years later.

Both Czech and Ohlde once were transferees. Ohlde was in his early 20s when he went into partnership with his dad.

“My dad was really good about turning a lot of things over to me,” Ohlde said. “As I started bringing my boys in, I saw that as a benefit. It made it easier to step away from some of those roles.”

Czech said he learned  a good way to keep an employee is to let them choose their specialty.

“That prepped me for when my son was ready to enter,” he said. “We let him navigate his way into what he liked to do.”

Czech stepped away from day-to-day management, and his workload changed a lot.

“I gave up the thing early on that I loved the most, which was the genetics,” Czech said. “I realized then I could probably give up other things too and still be happy.”

Czech does agronomy and accounting work for the farm.

When Smith took over, he and his father continued to make breeding decisions together.

“My dad was really into genetics and so am I,” Smith said. “He had a hard time stepping away from that. Instead of asking him to do that, he’s still making breeding decisions, and we’re picking bulls together.”

Lansing’s transition experience was not as positive. The transition plan for her family’s 1,200-cow farm in Iowa is now in a holding stage. She and her husband have relocated to Sunnyside, Washington, and reside on a 4,000-cow dairy where her husband is the main herdsman.

“When the transition process started, it started well,” Lansing said. “It wasn’t a negative thing the whole time.”

The farm is split 50/50 between Lansing’s dad and uncle. Lansing tried to have monthly meetings to discuss business opportunities and the state of the business but to no avail.

“That was a red flag for us,” she said. “Very difficult conversations were had. We constantly asked the state of finances but were never given those.”

The moderator asked Smith and Lansing about awkward conversations they had with family.

“The elephant in the room is that I have four sisters and one brother-in-law actively involved in the farm,” Smith said. “Handling expectations from everybody was the awkward part.”

His younger sister is in charge of the farm’s creamery and ice cream shop, while his brother-in-law is involved on the agronomy side.

“To have to sit and talk about money is difficult or whether there are additional people involved in the farm who shouldn’t be,” Lansing said. “Those are some of the hardest conversations to have.”

The panelists shared how they worked out the next generation buying into the operation.

Ohldes’ boys grew up owning cows for FFA projects, and by the time they transitioned, each had equity in cows. One son also started renting ground and owned several pieces of equipment. Ohlde and his wife sold a 20% interest in the business to each   son.

“We figured out what their equity was worth minus what the cost for them to buy in … and then they made payments,” Ohlde said. “Sweat equity is important, but in our situation, it was a little different because they had always been on the payroll. They also came in at the early ages of 22 and 24.”

Czech’s son takes a modest salary from the business.

“When I started farming, the barometer that I measured my business by was my net worth gain,” he said. “Being that my son is 50% owner of the business, his net gain is quite large.”

Czech and his son did not go into business together on the home farm. Instead, Czech provided the equity to borrow money to buy another dairy at 100% financing.

“We started on that farm on an equal basis, and all the gain we make is split 50%,” he said. “That farm is paying its own debt off.”

While working as an employee, Smith said he was fairly compensated.

“I always made it known that I aspired to own the dairy operation and keep it going, however, I never expected it, nor did I put my future in my dad’s hands,” Smith said.

Around 2015, Smith bought 167 acres of land, and in 2019, another 88.

“I wanted to farm, but I didn’t expect them to give it to me,” he said. “I was trying to get something going on my own with the idea that if it doesn’t work out, I have something to fall back on, and if it does work out, I’ve expanded my land base.” 

Smith said he had to bring value to the farm, which he did by improving somatic cell count.

“That more than paid for my salary and added to the bottom line,” he said. “If someone is going to come back, they have to pay their salary and then some while also adding value.” 

Tax credits played a part in Smith’s parents structuring a buy-in.

“My dad had a million dollars’ worth of tax credits that were going to expire in 2022,” Smith said. “We needed to get this transition done or he was going to owe a lot in taxes.”

Smith and his parents discussed forming a partnership and going to a corporation with shares, having Smith buy livestock and equipment and rent facilities and land.

“That was just kicking the can down the road,” Smith said. “For a few more thousand dollars, I could pay the mortgage. Yeah, that will make things tight, but in 20 years, I’ll be glad I did it.”

Lansing and her husband purchased 30 head of cattle as an investment in her family’s dairy. However, they never reached a point of purchasing or renting land from the farm or buying shares of the business.

“It was a very tough spot,” she said. “Every day, my dream was sitting within arm’s reach, but I never felt so far away from it. One of the hardest things I had to do was walk away.”

Ohlde started the transition process by working with his lender, an attorney and accountant. Smith’s go-to person was from Compeer Financial. Smith said he represented the farm, keeping the expectations of both Smith and his parents in check while determining what the farm could afford.

“He was that third party that took the emotion out of it and was a big help,” Smith said.

Czech said he had a great financial advisor and banker.

 “Those are two key things in any business, especially farming,” he said.

 Lansing worked with an attorney, and when buying cattle, she and her husband put it under the same lender as the farm to create a relationship with them. They also brought in several transition planners, but Lansing said there was never one that both her dad and uncle liked. Lansing hopes a transition will be possible in the future.

“You want to hear that your child wants to push their way into the business,” Czech said. “That’s encouraging. The farm is an active, living thing. There needs to be a generation entering the farm and a generation exiting the farm.”

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