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Serving: WI
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PLANNING PROCESS: There is plenty to consider when preparing for and carrying out estate planning.

Father wants to accelerate farm transition

Agrivision: Meet with family members, your attorney and your accountant to begin the estate planning process.

For the past four years, my 32-year-old son and I have delayed transitioning the farm to the next generation. We milk 225 cows and farm 500 acres. We have a double-eight parlor and a 200-cow freestall barn. We also have a dry cow and heifer facility. We own about half of the land. My wife and I have a $200,000 mortgage on the farm. We weren’t sure we would keep milking cows, but now that milk prices appear to be moving in the right direction, we have decided it’s time to get going on estate planning. Is there a way to catch up on this or accelerate the transition a bit? My wife and I are 62 years old, and we would like to retire in five years.

Doug Hodorff: No better time to start your estate plan than now. You ask if there is a way to catch up on the transition. You have to give some thought of what you want the transition to look like. I would think you are talking about transitioning assets. You could be talking about transitioning management. They are two different paths. I am talking about transitioning assets in the business.

First, you have to decide what your needs are for income. Then you have to think about that income stream and where it will come from. If selling shares in a business or income from rental property, etc., you will need advice from legal counsel and from a tax accountant. You are starting down a path that will require much thought. I would advise you to search out advisers who can guide you through this time.

Sam Miller: The best way to accelerate the transition is to start having conversations with your son, a good estate planning attorney and your accountant. There are two transitions to consider: transition of management of the business, which will allow you to retire in your planned five years, and transition of ownership of the business. This can also be accomplished over time; typically the income-producing assets — the cows and the feed — are first, followed by machinery and equipment, and finally the real estate.

You didn’t mention if you have other children. If you do, be certain to discuss equitable solutions for your estate with your attorney as you work through this process. Good luck with the business transition.

Katie Wantoch: There is plenty to consider when preparing for estate planning. If you create a timeline and stick to it, I am confident that you could have your plan enacted in five years. Work to set short-term goals that will lead to your long-term goal of retirement. Short-term goals should be SMART — specific, measurable, attainable, rewarding and timed. When developing short-term goals, you should be concerned with setting actual targets that you plan to meet in a specified time period.

Setting short-term goals can be difficult and challenging. You will need to gather various pieces of information and work with a team of professionals to develop these goals. Remember, short-term goals evolve out of your long-term goals and mission. These short-term goals will become the foundations for taking action to meet your long-term objective. The process of establishing goals and a mission statement is part of strategic planning.

Both short- and long-term goals are important to identify and discuss with your spouse and business partners. Do your goals differ from the goals of others involved in the business? It could be that all of you have different, important goals to help the business reach its mission. Be sure you are all on the same page before moving forward with your estate planning process. 

Pricing corn for silage
The rain this spring delayed us from planting corn until the first week of June. We farm 800 acres and feed out 50 Holstein steers. We can use some of that corn for high-moisture corn and corn silage for our steers, but that leaves about 300 acres that we’re not sure will mature by November. We planted soybeans on 400 acres. A neighbor who milks 500 cows offered to buy whatever corn we are willing to sell for corn silage. We are wondering how to price the corn. We are also wondering if this is a good idea. The neighbor is a good friend and does a great job managing his cows and crops. We just want to come up with a fair price. What are your thoughts? 

Doug Hodorff: To price corn silage, there are a few different formulas available. You can Google how to price silage. The main advice I can share is that each party involved understands how it is calculated. You have to decide payment options. Do you pay over time, or is it a lump sum payment? Whatever plan you choose, it should include a dry matter adjustment to a certain moisture. We have adjusted corn silage to 67% moisture. Think of the adjustment like selling dry corn. You adjust dry corn to 15% moisture. Also remember to weigh every load of silage and take dry matter samples from several loads as the silage is harvested. You could also sell it by the acre. I hope it works out well for you.

Sam Miller: This can be a great solution if you don’t believe your corn is likely to make full maturity but will be adequate for silage. There is not a commodity market established for silage, so most buyers utilize a conversion based on the price of corn. I have seen rates of seven to 10 times the price of a bushel of corn, at the lower range using the CME price, and the higher range using a local price — typically CME minus basis. You can also check with your local nutritionist or Extension ag agent for local conversion factors. Good luck given the challenging growing conditions this year.

Katie Wantoch: “What’s a fair price for corn silage?” Most Extension agents, farm management advisers and nutritionists have been asked this question. It’s a good question, but not a simple one to answer. Arriving at a “fair” price for corn silage can be a challenge. Retired Extension ag agent Tim Jergenson wrote that if there were an auction where buyers could meet sellers of corn silage, that market could establish a “going price” at that location. However, it is not practical to run these commodities through an auction; they are unstable and subject to rapid spoilage. As a result, silage tends to be marketed on a fairly local basis, and there may be no market price reported.

Whenever you make a deal, you have two perspectives: the buyer and the seller. The seller wants to cover production costs and maximize return per acre. The buyer can choose from a variety of feedstuffs and wants to maximize return on a per-animal basis. Because of the lack of weekly market reports for silages — and the availability of market reports for grain and hay — buyers and sellers often rely on formulas to price silage based on hay or grain prices.

Frequently, these formulas are reduced to some simple rules of thumb. These thumb rules may be helpful as a starting point for negotiations when establishing the value of silage. Jergenson provides three examples. 1) Seven to nine times the price of shelled corn; example: ($5 times 8 bushels equals $40 per ton). 2) One-third the price of baled hay; example: ($150 per ton divided by 3 equals $50 per ton). 3) Cost per acre plus return to grower; example: ($600 per acre divided by 20 tons per acre plus 10% equals $33 per ton).

If you would prefer a computer spreadsheet, the Corn Silage Pricing Decision Aid is available. No one pricing method fits all situations. The best price will be what the buyer and seller mutually agree to.

Agrivision panel: Doug Hodorff, Fond du Lac County, Wis., dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County, Wis., Extension agricultural agent specializing in economic development. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email  fran.oleary@farmprogress.com.

TAGS: Feed Dairy Corn
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