Every winter, our office prepares for the upcoming workshop season. We update our programs due to tax law changes or simply to stay ahead of the planning curve for farm estates.
In recent years, it has been a consistent priority to not only educate attendees on individual challenges they may encounter with their estate and farm transition plans, but also to help them understand the macro- economic “perfect storm” that threatens agriculture as we know it.
Sixty-five percent of real estate in Iowa is owned by people who are 65 years and older. Although this age group can afford to subsidize land purchases that may not cash flow on its own merit, this group will also distribute their estates at an unprecedented rate in the next 15 years.
This impending massive land transfer will be compounded by high land values, low commodity prices and land acquisition costs outside of a range of profitability (to either rent or buy additional land).
It is disheartening for producers to realize their cash flow limit for land acquisition could be more than 50 percent under what the open market currently demands for land sales (and 25 percent or more under what the open market demands for rent).
Unfortunately, there are fewer farmers feeding more people in the world. This has been a trend that will likely continue. Farm operations will need to grow to compete in the future.
The risks associated with this growth make it difficult for survival, as there is a small number of producers who can sustain the economies of scale needed to remain solvent in the present growth curve in agriculture.
Our population is living longer. There are many farm owners who will live into their 80s and 90s and have a farming heir in their 60s and 70s. This “sandwich” generation will want to own the farm but may not have an opportunity to own the land during their prime land-acquisition years (their parent’s lifetime).
Nothing tests the metal of a family more than a shared inheritance. This statement is especially true of a family trying to decide a “fair” distribution of an appraised farm estate after death without strong guidance from the land owner.
Farming is not a job. It is a way of life. Continuing the legacy is a fundamental desire most families want to achieve.
The struggle for control in a farm operation is real. For an entire lifetime, a farmer has worked diligently and sacrificed more than conceivable to get to the position they currently enjoy. They may not give up that position easily.
Any one of these factors individually could mean serious issues for a farm estate to continue to the next generation. My concern is that there may be a combination of multiple factors all occurring at once which could result in an unusual magnitude of issues.
These issues are micro-economic for individual families and macro-economic for the long-term viability of agriculture.
In this case, my sincere hope is that we do not ignore the warning signs when a storm is coming and have ample planning time to minimize future damage.
The Wizard of Oz
The most famous storm scene in U.S. cinema history was filmed on Auntie Em and Uncle Henry’s Kansas farm, where Dorothy Gale and her dog Toto were caught in a tornado's path and somehow wound up in the land of Oz.
Although the Academy Award for Best Picture that year went to “Gone With The Wind,” “The Wizard of Oz” won Best Original Song for "Over the Rainbow" and Best Original Score.
While the film was considered a success upon release in August 1939, it failed to generate a great profit for MGM, earning only $3.017 million on a budget of $2.777 million.
For nearly a century, critics have hypothesized hidden meaning to the story of a girl trying to find her way home to her family farm in Kansas with a bump on her head from a storm.
In the mythical land of Oz, Dorothy and Toto met memorable friends and foes along the yellow brick road to meet the Wizard of Oz in their quest to return home and grant her new friends a brain, a heart and some courage.
Economists likened the yellow brick road to the gold standard and the ruby slippers (originally silver slippers in the book) to the silver standard.
Political scientists slanted the movie as a warning of the future threat of communism after the struggles in the Great Depression.
For the purposes of your entertainment in reading this column, consider the award-winning movie a foreshadowing of the American farmer’s struggle to transition the family farm.
Dorothy (the farm heir) and Toto (the devoted farm dog) follow the yellow brick road (planting and harvesting an annual crop) while the off-farm siblings played by the Tin Man (whose heart wasn’t into farming), Scarecrow (who lacked business sense) and the Lion (who wasn’t a risk taker) got jobs off the farm to support their families.
Along the way to the Emerald City (heaven), they meet the Wizard of Oz (their attorney) to help them get home (completing “overwhelming” estate plans). Dorothy and Toto encounter flying monkeys (in-laws), munchkins (the neighbors who always seem to be watching) and the Wicked Witch of the West (chaotic events such as death, divorce, nursing home, bankruptcy, probate, greed, bad planning, bad weather or bad markets).
Dorothy and Toto also find Glinda the Good Witch (glorious events that give hope and inspiration such as the birth of a new generation, the coming of spring planting and a bountiful harvest).
When the house lands on the Wicked Witch of the East (the step-mother) be careful what you wish for as you may get the ruby slippers (farmland), but the Wicked Witch of the West will eventually arrive in a ball of smoke and fire to claim the hallowed slippers.
With a little skill and a lot of luck, you may be successful in melting the Wicked Witch of the West with a bucket of water and claim her broomstick in triumph, just to be frustrated by finding out the Wizard really isn’t a wizard.
‘There’s no place like home’
In the end, the magical powers of the Wizard may not be needed so long as Dorothy remembers Glinda’s instructions to tap the ruby slippers together three times and repeat, "There's no place like home."
Our journey as farmers would be routine if all we had to do was to follow a yellow brick road. In a farm transition story, however, the road branches into various forks fraught with uncertainty and unfavorable consequences.
My hope is that you will be able to avoid danger along the yellow brick road of farm transition on the way to your Emerald City. If you are like me, I’m certain you will find there really is no place like home.
For 25 years, Steve Bohr has been a partner in the farm continuation firm of Farm Financial Strategies, Inc. For additional information on farm continuation issues or if you have a question please contact Steve via email at Bohr@FarmEstate.com or by phone at 1-800-375-4180.