Introduction by Chas Bonner
Jeri Engstrom is a man who knows first-hand about the subject of “expanding vs. selling.” He was a 4th generation farmer in Glasgow, Montana who decided to sell his stake in the 8000 acre family ranch to an investor who then rented back to Jeri’s brother. Jeri took some cash, and moved to a friendlier climate in Boise, Idaho at the suggestion of friends. He now brings his considerable farming talent and experience to Scythe & Spade. The farm’s loss is our gain.
Expanding vs. Selling
This is the age old question for families in the farming and ranching community. There are a multitude of factors involved in making this kind of decision; let’s focus on a few of the main factors.
There are five primary reasons one may consider expanding:
First: Younger family members want to come back to the farm as a career. This is probably the most predominant reason for farmers to add acres to their existing operation.
Second: Shrinking profit margins. You can only produce so much off of that same sized acreage, yet after thirty years your expenses have doubled, tripled or quadrupled and the profits have not kept up, requiring expanded acreage to feed the family.
Third: Is there economic sense in the expansion move, i.e.: does it cash flow? Most farm ground bought by farmers is financed through a bank or sold under a contract for deed. Usually there is a 25 or 30 percent down payment made, then annual payments for usually between 10 to 20 years. Outfits like Farm Credit are more than happy to carry the paper for 25 years, but in the end, it all has to cash flow.
Fourth: Locality, what is its proximity to your current location. The farm ground right over the fence always garners a premium to the expansion minded farmer. Conversely, it will cost you money to drive 50 miles out of your way to farm a piece of ground you thought was a bargain (windshield time is expensive ).
Fifth: Long term investment is another important reason for expansion. When an investment like this is made in a family operation and combined with a life insurance policy for the surviving spouse, it can become a very sensible investment for generational transition and continuation of the family legacy of being on the land.
Now, what about the selling side? If you don’t have heirs or children that are interested in agriculture, your view of the future may be much shorter term. You and your spouse probably spent several decades on that farm, raising crops and kids, and making sure the farm does all it possibly can do for you. Now you want to see some of the world while you are still limber enough to enjoy it. You can’t do that if you take on more ground, more debt, more worry. You think this could be just the perfect time to sell. Land, over time, always appreciates and now you have a nice nest egg just waiting for you to use.
Some of the biggest positives to selling now would be:
- Lower capital gain taxes
- Becoming debt-free (possible for the first time in your life)
- Freedom
- Semi-retirement
- Move to a better climate
It takes a lot of soul searching, family discussions and mathematical calculations to make such an incredibly difficult and final decision, but it can be done. It will happen more in the future as well because the statistics currently show 45% of U.S. farmland is being farmed by people who don’t own it; that statistic is expected to climb to around 70% in the future.
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