Dave Forgey wrote:
>>>>>> In my opinion there is very little risk if the potential new buyer
is employed for a year or few before the take over. They need to have a
basic understanding of grass farming but you'll know if they have that
ability and desire quite quickly. Beyond that very little damage can be
done to the land or for that matter the animals if the former owner
stays slightly involved. If this weren't so the system would not have
worked so well in both New Zealand and Australia.
===
Rick's comment: Dave, there are so many, many things that can go wrong. A
huge problem can be personal/family issues, etc. If this person is going to
be taking over your farm, there are so many things that could cause problems
and if they are your livestock, it is even more of a risk if you are not
directly supervising. And they can walk away and leave you hanging without
even one days notice. This is especially true as a laborer on the farm,
rather than a co-owner who has some vested interest.
>>>>>> Chances are slim that land prices will drastically decline so adding
land if it can be projected to be profitable will be a good investment.
Capitol Gains tax in selling land is the major draw back so actually
helping a young farmer buy another farm (perhaps joining) by using your
land as equity would be beneficial for both involved. At some point he
could move on and leave an employee with the same desire and ability and
we could do it again.
====
Rick's comment:
We have seen some drastic land price declines before. Such as in the 1980's.
Will it happen again? Yes ... but maybe not in our lifetime. It depends upon
other factors unrelated to farming. But as you know, land is often priced
well above it's agricultural value and has to be considered a long term
investment with some risk. You don't want to be "investing" in land when you
are nearing retirement.
If you are selling your property as I talked about earlier through a
transitioning process, you can have an easier time of not having a huge lump
sum settlement on the capital gain. And with tax changes, capital gains may
not be as bad as they have been. Either way, you are going to have to pay
the gain someday.
If you are trying to exit farming, purchasing more land may not be something
most people would be moving toward. They would be trying to cash in on their
investments needed for their retirement. If you are expecting the new
entrant to move on, then this is not what I had discussed earlier with
transitioning the farm to a new entrant.
I am not clear why you would want to do this again. The whole point was to
transition your farm to the next generation.
One of the problems we have seen over and over with attempts at
"transitioning" is that the seller really wants cheap labor and when the
laborer figures it out, and they usually do, often sooner rather than later,
they are not going to be willing to continue the arrangement.
If you made an arrangement up front that you would help them accumulate
wealth by helping them build their own herd and then using this herd as
capital to help them buy a farm, that has worked for some. But it is not
really transitioning your farm to a new entrant. It is transitioning a new
entrant to help someone else sell their farm.
In fact, most young people, who do not come from a farm background, and who
do not have wealth from other sources, would probably do best by first
learning the ropes through dairy farm course work, practical work on a farm,
continuing education, and then by renting a farm and building a herd of
their own. In our area, a grass based dairy is not as practical to rent or
as most have found out, is nearly impossible to rent. If they could rent a
confinement facility with a parlor, even with minimal land, they have a way
to build cow numbers with reasonable labor efficiency. Otherwise, most of
the attempts have been to try and start grazing on a conventional farm and
it is very difficult to succeed because it takes many years to transition
the farm to grass based farming, assuming that the landlord would even
permit such a change. I think this can be a major factor in the high failure
rate of new entrants.
What is happening in dairy farming, and much of farming today, is expansion
of existing farms, often done to include new family members. There are a few
exceptions with non farm entrants, but they are rare and we have seen many
come and go. We need almost no new entrants because of the family
expansions. What is happening is that there are many openings for relatively
low paid labor on larger farms because the farm owners want an improved
quality of life.
Sincerely,
Rick Williams
Misty Ridge Farm
contract dairy heifer grazing and direct marketed farm meat and produce
Viroqua, WI
www.mistyridgefarm.com
