Transfer Strategies for Beginning & Retiring Farmers
Successful land matches can take many different forms.
Six examples of successful linking between new farmers or ranchers and existing landowners are below. To learn more about the details of others’ experiences, check out our case studies here. For additional information on any of these arrangements, contact Wyatt Fraas.
For more information on types of linking arrangements and transfer strategies, consult this PDF document.
Transfer 1: Young couple buys the farm they work
Transfer 2: A no-equity start
Transfer 3: New rancher invests in an existing cattle operation
Transfer 4: Turnkey lease of farrow to feeder operation
Transfer 5: Gradual ownership transfer through salary and rental share
Transfer 6: 50/50 partnership
Transfer Strategy #1: A young family buys the ranch they work
Frank and Linda,* a young ranch couple, had been renting a piece of ground and working as employees for Robert, an older landowner. Robert wanted to sell his ranch and retire, and Frank and Linda wanted to become landowners of the ranch where they would raise their three young children.
The young couple took out a bank loan to pay for the home, and they also worked closely with Robert, who provided a 30-year mortgage on a portion of the operation with the agreement that payments after Rob’s death would be paid to his estate.
During the first 10 years of this arrangement, Frank and Linda made annual interest payments while building their cow/calf operation, while the remaining acres carried a crop share lease with a long-range plan for purchase. With their ranch well established over 10 years, Frank and Linda began paying on the principle, becoming successful landowners.
Transfer Strategy #2: A no equity start
Tony and Jillian, a young couple, wanted to become landowning farmers, but they had no equity. They found full-time employment on a farm, where they received a wage and a percentage of the calf and wheat crops. Over the next few years, they built both equity and experience, positioning themselves to be able to begin renting some acres. In time, they hope to follow the example of transfer story #1 and work with a retiring landowner to become landowners themselves.
Transfer Strategy #3: A new rancher with some resources invests in an existing operation
Mark, who owned 30 head of cows, was looking to own his own ranch. He began working with Ed, an older landowner and rancher, on an arrangement that benefited both.
Initially, Ed hired Mark for 90 days, during which he provided guidance and demonstrated techniques to help Mark gain the skills he would need as a landowner. Next, the two worked out a rental arrangement for machinery valued at $75,100 with an 8% rate of return, including an option for Mark to buy the machinery later.
Mark brought his 30 head of cows to the ranch, and the two ranchers worked out a 60/40 crop share arrangement that would allow for transition of the existing herd to Mark’s ownership. As the older cows were culled, replacement heifers came from Mark’s share, resulting in turnover of the herd within 10 years.
Transfer Strategy #4: Turnkey lease
Ben, who was interested in operating a farrow to feeder operation, worked out terms of a lease with Steve, a landowner who wanted to move on to other things. Ben leased the entire hog facilities, including buildings, equipment, equipment storage, and 142 sows, for a period of four years.
Ben and Steve eased into their lease, which began with an initial six-month trial period during which either party could terminate the lease with a one-week window to serve notice, and had a determined rent payable on a monthly basis, with the first two months rent set at half the rate of later payments.
In addition to the cash rental, Ben paid Steve two pigs per litter for all litters farrowed in the first two months and one pig per litter thereafter. He made payment on the equivalent value of a 40-pound pig within 60 days, with the agreement that any delinquent payments would be charged interest of 14% per annum on the unpaid principal balance until paid.
Ben operated the farm under an agreement to maintain it in good condition and repair, with consideration for normal wear depreciation. Steve aided the transition by agreeing to repair the machinery and maintain the premises for 30 days after the beginning of the lease. Ben was responsible for all expenses and management responsibilities, and he purchased feed from Steve at market value.
During the lease, the livestock was insured with Steve, the owner, as the loss payee. Steve was granted a first lien on all livestock to secure the payment of all rents and other resources. He also retained the salvage value of all breeding stock sold. Finally, Steve retained the right to give 30 days notice of termination to Ben if the sow death loss exceeded 5% or if Ben was more than 30 days delinquent on any payment owed to Steve.
By working closely with an established landowner, Ben was able to benefit from Steve’s resources and experience and become a successful farrow to feeder operator, while Steve continued to benefit from owning a secure and well-managed operation.
Transfer Strategy #5: An employee becomes the owner of a hog herd
James, a new farmer, and Alex, an older landowner, worked out a 10-year contractual agreement that slowly transitioned ownership of Alex’s 200-sow farrow to finish operation.
Throughout the transition, James, the new farmer, provided management of the farrowing operation and necessary labor for the entire farm (which also included a cattle herd and crop ground that he did not assume ownership of). James maintained a complete set of records of the hog operation, including production and expenses. Alex, the owner, provided livestock facilities, housing, and utilities.
For the first year of the arrangement, James was a full-time employee, and over time, his salary decreased as he began to rent an increasing share of facilities and operations, shown in the table below.
|Year||Salary ($/Month)||Share (%)|
In addition to the salary and rental share agreements, the contract provided for 10% of the sow herd to be culled each year. James bought the replacement gilts as his property, allowing him to gain both 10% of the herd and 10% of the livestock marketed each year except for the culled sows.
By the end of the 10th year, James was poised to rent all of the farm ground and own all of the sows, providing him with a substantial enough farm income to work with Alex on an agreement to purchase the farm.
Transfer Strategy #6: New farmer and existing landowner form a 50/50 partnership.
Over the years, John, a landowning farmer, had gradually reduced the size of his cattle finishing operation. He wanted to revitalize his cattle and feed crops operation, and he hoped to secure the continuation of his farm after his eventual retirement. Chris, a new farmer, wanted to build equity and work towards owning his own operation.
The two set up a partnership. They purchased cattle together and borrowed all operating capital on an annual basis, including a cost of living allowance for Chris. All expenses incurred by the partnership were paid whenever crops and/or livestock were sold, with proceed split 50/50. John
supplied all equipment.
As income was received, the agreement stipulated that Chris would reimburse the partnership for his cost of living draws, and any remaining proceeds went towards his purchase of farm equipment from John, one item at a time. A means for determining the value of each piece of equipment and the order of purchases was set at the beginning of the arrangement. In consideration of the fifty-fifty split in the first years, with little or no equity investment on the Chris’s behalf, it was agreed that the John would continue to receive half of the income for an additional two years once all the equipment had been transferred.
John and Chris’s partnership resulted in a thriving operation with a bright future. Chris looked forward to a long career on the farm, and John looked forward to retirement as he considered selling his land to Chris once the equipment had been transferred.
*All names have been changed to protect privacy.