The future of any industry is in the entry of new blood to carry on, innovate and build the business
Every starting quarterback knows he must train his successor, or risk hurting the team. It's a tenet of any organized activity with hopes of continuity, but it's a principle many in ranching seemingly fail to grasp.
Dave Baker, Iowa State University (ISU) farm transition specialist with the Beginning Farmer Center (BFC), points out six farm-succession challenges every beginning rancher should consider, and every established operator should keep in mind.
- Ineffective entry strategies.
“I just want to raise my family on the farm,” is a phrase Baker hears all too often as he works with beginning ranchers. “It's a very good lifestyle for family, but so many people don't consider the business side of what it takes to get into farming,” Baker says. If it's only a lifestyle people are seeking, he suggests getting a small acreage outside of town and keeping the job in town.
“There's more to running a farm business than just raising your family on an acreage,” Baker emphasizes. “You have to know how to run a business.”
Ten years ago, Kevin Ochsner, 40, and his wife Julie made the decision to raise their young family closer to production agriculture. The decision between enjoying a rural “lifestyle” and building a business weighed heavily on the couple.
The lifestyle choice would have left the Ochsners with or 15-20 cows producing 4-H projects for the kids; whereas, a business venture meant a larger cowherd and a reasonable secondary income. They chose the latter, and today have a 125-head herd near Kersey, CO, raising three children - Caitlyn, 11; Ashlyn, 8; and Collin, 5. Their business model includes a local branded beef business and selling breeding stock both private treaty and through a satellite arrangement with Wulf Limousin.
“Both Julie and I have a deep passion for production agriculture that extends beyond the lifestyle of living in the country. It includes our passion for the kind of people you meet in agriculture and our desire to build a business together,” Kevin says.
- Inability to acquire initial capital investment.
Tallying up the starting costs of ranching isn't for the faint of heart. The key is to start small. “You start out small and build your business, just like anything else. Be patient,” Baker stresses. Don't think it's possible to buy land, $200,000 worth of machinery and a herd of cattle all within a year or two.
Instead, he suggests thinking in terms of long-term relationships. “How about buying out a stock cowherd over five years where you could buy a fifth of the herd a year for five years?” Baker suggests.
For machinery, start with basic, immediate-need equipment, or consider custom farming. It's tough to get into a bidding war for land when equity is a concern - cash-renting land and working with landowners and small acreages is another possibility.
Kim Cullen, a 34-year-old rancher from Wheatland, WY, has the “build slowly” mindset. Her custom artificial insemination business began in 2000 servicing 1,500 head/year, and now accommodates more than 5,000 head; she has grown her cowherd, too, without owning land.
“Good ranch land around here is disappearing; it's going for outrageous prices that you can't pay for with livestock,” Cullen says.
Early on she'd snatch up land someone else had passed over either due to fencing, pasture quality or water issues because she was willing to mend fences and get creative. Her herd has grown to 85 cows, and she's built a reputation caring for land where overgrazing is a common problem. Her advice for folks with land leases is to be respectful, pay on time and not be afraid to go the extra mile to make arrangements work.
While Baker sees the initial capital investment as an issue, it's not a major obstacle. He cites loan programs through the Farm Service Agency (FSA) and Farm Credit Services, in addition to Beginning Farmer Loans. Baker also points out that banks in rural areas value young families and are eager to support them.
- Identify viable farm entry enterprises.
“This is where we promote niche-market farming,” Baker says, pointing out that natural products, locally grown foods, farmer's markets, grass-fed beef and small dairy herds are viable entry options.
Matt Perrier, 34, Eureka, KS, sees urban sprawl as an opportunity to capitalize. Though it adds regulatory pressures and drives up land prices, Perrier believes what “city folks are truly seeking is some connection with the country.” While he's not ready to start an ag-tourism business, he is ready to capitalize on the opportunity to educate consumers about the benefits of beef and its production.
“If these folks continue to seek that romantic, western lifestyle, we can use this as an advantage,” Perrier says. “Many of them don't simply want a slab of red meat, they want a story and a ‘feeling’ to go along with it.”
Beginning ranchers need to look no further than the Internet to help them generate farm-entry options. “You can get hundreds of ideas on how to get involved in agriculture,” Baker says.
- Obtain appropriate financial, managerial and production skills.
Baker works with a large number of beginning ranchers he deems “U-turn farmers.” They've graduated high school, gone to college and worked for a company or corporation that's not tied closely to agriculture. After 10-15 years, they yearn to be back on the farm.
This is a similar situation that John Carter, 28, from Taft, TN, faced. Though he obtained a degree in agriculture from Tennessee Tech University, Carter worked two years as a pharmacy trainer before returning to ag as manager of Hickory Hill Farms. He doesn't regret his off-farm experience.
As farm manager, Carter has been able to flex some of his managerial muscle in terms of rotational grazing, planned breeding seasons and embryo transfer technology. “Instead of calving now from July 1 to June 30, we actually have set calving dates, synchronize cows to breed and all that good stuff,” Carter says.
Ranchers trained in specialized non-ag production often need to be retrained into modern farming practices, Baker points out. That includes the economic realities that seed corn has swollen from $30-$40/bag to $250/bag, and fertilizer has jumped from $10-$15/acre to $350/acre.
He estimates that about a quarter of candidates he works with at BFC are highly trained and capable of taking over a farm.
“Slowly, you're going to be able to take over the operation. Remember, the operator's been doing it for 40 years, and quite often learned from the school of hard knocks,” Baker says. Attending workshops and conferences, in addition to spending a few years working on a ranch, can be beneficial.
- Effective risk-management tools.
In many cases, newbies need to learn what risk management tools are available, and how to use them. Baker recommends understanding crop insurance plans, the Chicago Board of Trade and how to use these tools to mitigate risk.
For financial risks, the government provides beginning operators specialized loan programs, lowered interested rates, minimal down payment plans and longer term repayment schedules. ISU's Ag Decision Maker website (www.extension.iastate.edu/agdm) is another tool Baker recommends.
One of the tools Grace City, ND rancher Jason Topp, 22, finds valuable as a budding cattle producer is understanding the difference between data and information. “Information is when you take those raw numbers and turn them into meaningful criteria for culling cows, finding your low producers and things like that,” Topp says.
At his family's cow-calf operation, they've amassed birth weight, weaning weight and cowherd data, but never took the time to analyze it.
“My goal is to transform all this data into meaningful information to make this a viable operation that stands on its own two feet,” Topp says.
- Lack of supplemental employment opportunities.
“This is important if young people are going to start out on a smaller scale,” Baker says, noting there aren't many jobs to pick from in small, rural communities.
But working both on and off the farm can be positive, says Craig Moss, 25, from Hull, IA. He jokes that when he's not working as a part-time beef specialist with Land O'Lakes (LOL), he spends every other waking minute as an employee at his family's diversified livestock feedlot.
Moss enjoys the combination of positions because “one benefits me in the other.” Feeding cattle with his dad helps Moss understand the fears and pressures of his customers. Conversely, he's able to bounce ideas off other cattlemen through his position with LOL.
For married couples, Baker tells them to “consider what income your spouse can bring” because there's an income potential of $25,000-$30,000. Many a farm spouse contributes income from a job or career in a nearby community. But in saying that, Baker is hopeful that both husband and wife can be involved in the farming operation.
Advice for the older generation
Dave Baker, Iowa State University farm transition specialist with the Beginning Farmer Center, points to three areas current farm operators struggle with in assisting ranching's next generation.
Difficulty transitioning the farm to the next generation.
Lack of communication is the initial problem. “Many times the older generation hasn't identified somebody to take over the farm; they just act like they're never going to die,” Baker says.
Motivation is the stumbling block. As the older generation ages, the body gets creakier and stamina lags. Yet, they often must be motivated to scale back, find someone to take over the operation and plan the process.
For the older generation, the willingness to turn over assets to the next generation is difficult. “They've done it themselves, their way, for so many years that's its really tough for them to give the go ahead and let the new generation make mistakes,” Baker says. “So we encourage the older generation to be mentors to the next generation.”
Lack of qualified help in formulating exit strategies.
“How many times do farmers share their thoughts on transitioning with their banker, accountant or CPA?” Baker asks. Research shows only 20-30% of farmers and ranchers discuss transitioning; of that, 1-2% discuss it with professionals who deal with estate planners or bankers.
“We need to convince the other stakeholders in farming to encourage farm families to talk about this more and plan it out,” Baker says. He notes there's no lack of qualified help, just a lack of willingness to discuss it with others.
Unwillingness to transfer ownership of assets.
“If you want to leave a legacy, if you want to leave a stable farm operation, you must start to turn it over before you die. That takes planning,” Baker says. Starting the process at the age of 75 doesn't allow five to 10 years to plan this process, which is the period of time Baker prefers to see a transfer to a beginning rancher take place.
Wait too long and health may become a concern. “If you're under pressure to transition because of health reasons, it's a poor time to think clearly and discuss things rationally. You're in a rush.”
Over the next decade, trillions of dollars in agricultural assets are likely to change hands as Baby Boomers transition into retirement. “We need to start working on this now,” Baker says.