Table of Contents:
- A Family Affair
- <strong>My Response</strong>
- Major land purchase is always questionable and will take sacrifice
- Build the succession in management and proactive tax and estate planning before Uncle Sam takes all
First of all, congratulations on being interested in agriculture and being enterprising enough to combine you, your brother and your respective spouses’ employment with farming. You are on the correct pathway by using your parents’ equipment to maximize income, developing the management synergy with your brother, but also looking to the future in building retirement and savings.
Yes, land values are high, particularly good-quality land. If you both have the ability to make the 80-acre purchases of land, realize that this is a long-term investment, i.e. 20-30 years. Values may go up or down on paper, but if you have the debt servicing ability – even with difficult economic scenarios, i.e., best, average and worst case – and still are able make the payments, you may consider taking on the investment. Realize that having a working capital buffer of at least 10-20% of revenue as a counter-cyclical buffer to a depressed market or skyrocketing costs is very important.
Next, make sure you and your brother’s families maintain four to nine months of living expense in cash savings in your personal finances.
Debt service, working capital management, a sound risk-management program and a solid-relationship lender who understands agricultural cycles trump the financial leverage up to a certain point.
Realize that a major land purchase is always questionable and will take sacrifice. Is this consistent with your brother’s, spouses’ and your goals?
Finally, get mom and dad to do some transition planning as soon as possible. If you have other siblings, this is even more imperative before you acquire too much land. I commend your parents for giving you and your brother a chance to farm. They need to take the next step now to build the succession in management and proactive tax and estate planning before Uncle Sam takes all. I suggest bringing them to a seminar this winter to get to get the thought processes going because it could take one to three years to develop a plan. Good luck.
To many of you reading this column, this is a classic, challenging young and beginning farmer case. Many are working away from the farm with nonfarm revenue and building business and management expertise along with accumulating wealth. Yes, there is a bright future for American agriculture.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.