Tag: debt

Rural Lands At Risk In The West As Ranchers Prepare For Retirement

  FEB 2, 2018

Winds were gusting over 45 miles per hour on an overcast day at the Dunmire Ranch in southeastern Wyoming. Black cows grazed in the distance with wind turbines lined up on the horizon. At the center of ranch, young colts milled around the corral. Gator, a 14-year-old blind and deaf dog, barked, guarding the home of rancher Les Dunmire.

Inside the house, Dunmire put on his dirt-caked cowboy hat and boots, as he told me how he’s owned this ranch for just over 30 years and that this lifestyle goes back generations.

“My dad had a ranch in Iron Mountain Wyoming and my granddad had a ranch in Sioux County, Nebraska,” Dunmire said.

Land on the Dunmire Ranch
CREDIT COOPER MCKIM/WYOMING PUBLIC RADIO

 

Back when he started in 1987, Dunmire only had a few hundred head of cattle. Now, he owns over 100,000 acres and 1800 head of cattle. But at 66, Dunmire is starting to take a step back from it all.

“I always tell people that I’m going to work as long as I can and then become a burden for my children,” Dunmire said,”but seriously, as we get older we do a little less. As we get older, we transfer more of the day-to-day operations of the ranch to our children.”

Dunmire said he sees passing on lands as the last responsibility of a rancher. “We’re trying to get it to the next generation, or the next two generations, intact with the smallest amount of tax pain that we could possibly have,” Dunmire said.

He’s been preparing for succession now for 26 years. It’s required an accountant and lawyer to figure out the best way to keep his kids from drowning in estate taxes. One strategy has been to divide the land into six legal entities. To put the situation in context, Dunmire recounted the story of how his dad came into his ranch. It also serves as a worst-case scenario of poor estate planning.

Sign at the entrance of the Dunmire Ranch
CREDIT COOPER MCKIM/WYOMING PUBLIC RADIO

 

“There was kids that wanted to stay there, but when the grandfather passed away he had not done any estate planning or gifting or anything to get ready to pass it on. And they had to sell the ranch, basically, because of [the] tax situation,” Dunmire said.

He’s far from the only one going through this process. In 2012, the average age of farmers and ranchers hit a record high of 58 years old. According to a report from the National Young Farmers Coalition, 63 percent of farms are on the verge of transitioning. Experts say the U.S. needs to be prepared for a massive land transfer in the next decade.

John Hewlett, a farm and ranch management specialist at the University of Wyoming, is one of many who working to smooth that transition.

“A lot of folks need help in terms of transferring ownership, worrying about how to best structure their farm or ranch in terms of tax, as well as making sure that the ownership is transferred such that the ranch or farm can be viable after the transfer,” Hewlett said.

He said easing the transition isn’t just about helping the older generation, but the younger one. That’s increasingly tough with fewer and fewer young people joining the industry. In 2012, only 6 percent of farmers were under 35.

“They become educated and they have other income opportunities as a result. It’s a lot different than 50 years ago when a lot of people’s focus was to be on the land, and to do some kind of jobs on the farm. It was part of the family’s activities,” Hewlett said.

Principal operators by age group
CREDIT USDA CENSUS OF AGRICULTURE

 

He’s helped create a website full of resources on steps to take in land succession. There are many other organizations offering seminars, programs, and workshops as well, like the Plank Stewardship InitiativeUniversity of Wyoming Extension, and the Western Landowners Alliance. Lesli Allison, executive director of the WLA, said her organization wants to help lower the barriers to entry for young people by supporting policies like loan debt forgiveness programs for those weighed down by student debt.

“As a nation, we need to be looking at policies and economic strategies to sustain these landscapes and make it possible for people to make a living in the rural west, to stay on that land, to raise families on that land, to stay in rural communities in a way that supports both agriculture and conservation,” Allison said.

She said a football field worth of land is lost to development every two and half minutes in the west. And that’s partially private land that supports wildlife, clean air and water, and biodiversity.

Average Age of Principal operators
CREDIT USDA CENSUS OF AGRICULTURE

 

Allison said beginning the process of land succession early is crucial to preserving ranches and farms, whether there’s an obvious heir or not. That starts by simply talking about it.

“Simply raising awareness and encouraging uncomfortable conversations.” Allison said, “they can become quite positive and transformative.”

Back at the ranch, Dunmire drove his red truck through a shallow, ice-laden stream, giving way to an open field with hundreds of cows grazing. A few trotted out of the way as the truck drove past. Dunmire said he’s loved raising a family on the ranch.

“The family is intertwined with the ranch and it’s a great place to raise cattle and kids,” Dunmire said.

And he said he feels lucky to pass that on.

Overcoming Barriers to Entry for the Next Generation of Ranchers

By Dan Childs
Senior Agricultural Economics Consultant

Posted Nov. 6, 2019

 

The U.S. Department of Agriculture has been saying for years that the average age of the American farmer is going up. The latest estimate of the average age is 59.3 years, as the baby-boom generation gets older. As a result, it has been estimated that 70% of the land in agriculture will change hands by 2031. This is a startling forecast and one worth contemplating in terms of how the transition will occur.

The number of farmers and ranchers in the United States has been decreasing, with the latest estimate just a bit more than 2 million in total. Fewer children are being raised on farms or ranches, too, and many of those who have are choosing other occupations, with no plans to return to the farm or ranch. Young people who have developed an interest in agriculture but do not have farm roots face a variety of barriers to entry as beginning farmers.

According to the balance sheet of agriculture, the total value of all U.S. farm assets is just over $3 trillion. When divided equally among the estimated number of farmers in the U.S., the average investment per farmer is $1.5 million, with the majority of that being in land. So how does an interested young person get started, when the day one could buy land and expect to pay for it by working it is long gone?

70 percent of the land in agriculture will change hands by 2031. This is a startling forecast and one worth contemplating in terms of how the transition will occur.USDA estimate

LAND: OWN OR LEASE?

It is generally agreed that the biggest barrier of entry to agriculture is the price of land. When the price of land prohibits entry into agriculture, what is the best alternative? Typically the answer is to lease it from a landowner. Lease payments are usually much lower than land payments, even in today’s low-interest-rate environment. However, leasing does come with challenges. Often landowners will only negotiate one- to three-year terms. It is usually not feasible to develop infrastructure through permanent structures or invest in long-term soil health improvements with lease terms no longer than three years. Aging farmers need to be more amenable to longer term-lease agreements or willing to recognize improvements lasting longer than the lease term by cost-sharing or including a refund clause if the lease is terminated.

OPERATING CAPITAL AND DEBT CONCERNS

A second barrier common among many people wanting to have their own farm is operating capital. Granted, there is a greater awareness by some lenders such as the Farm Service Agency and the Farm Credit System, which have created special credit standards for young, beginning and small farmers and ranchers to be able acquire financing. However, then debt becomes a concern. As noted in the below figure, U.S. farm income has been somewhat of a roller coaster. Managing debt in such an uncertain landscape can be very difficult.

ChartU.S. Net Farm Income 2000-2019 Source: USDA, Economic Research Service, Farm Income and Wealth Statistics

PROFITABILITY AND RISK MANAGEMENT

This brings us to a third barrier: the lack of consistent profitability. The perils present in production agriculture are many. At the end of each day, every agricultural producer must be an astute risk manager. First and foremost, weather risks could be at the top of the list, with markets or commodity prices not far below, followed by government policy, including regulations, trade, tax and labor laws. Many other risks exist that challenge consistent profitability. Considering all these factors, it becomes apparent that agricultural producers truly have a genuine passion for the work they do and the contribution they make to feed the world, despite the risks.

ENSURING THE FUTURE

The U.S. has not had to depend on another country for food, and that is a great blessing. We have achieved national food security because of the work ethic and productivity of American farmers and ranchers. Yes, there are obvious reasons for the U.S. to trade with other countries and benefit from our comparative advantage. Fair trade between countries helps both consumers and producers.

Much work lies ahead for the U.S. as we navigate the transition of farmland to the next generation. It is paramount that the transition is made to people who have the same passion and dedication to production agriculture as past generations, who have made U.S. agriculture the envy of the world.