Cash-Poor Farmers Can’t Afford to Sell to the Next Generation

The average age of farmers is on the rise because farmers count on farm-sale proceeds to retire. If there’s no profit, there’s no retirement.

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For those who may not be familiar with the term, a farm auction happens when farmers exit their business. It may be because of financial strains on the business, a marital breakup, death, or just because someone quits farming.

Auctions are the primary method for liquidating farm property and sometimes even personal property, converting the whole shebang to cash. Auctions usually draw big crowds from across the area, sometimes for hundreds of miles around, depending on the amount, quality, and age of farm equipment offered for sale. Because of that, farm auctions are also a form of social gathering where neighbors visit with neighbors or total strangers, sharing what they know about the general state of the farm economy and things in general.

They also share jokes and stories, some funny and some that offer grim amusement.

One in particular goes like this:

Three farmers are talking at a farm auction when the oldest of the three steps away to watch a particular piece of machinery sell. Once out of ear shot, farmer A says to farmer B, “Bill, we’re getting up there in years. Things aren’t getting any easier. I’d really like to slow down but I just can’t afford to. So—I’m wondering—what are your thoughts about retirement?” Farmer B just stares off into space for a moment, considering his response. Then he shrugs and cocks his head in the direction of the older farmer a few feet away. “That depends on when Dad retires” he said.

Farm organizations devote much of their support to helping young and beginning farmers find a path forward. What we hear about most are issues like access to land, experience, and financial limitations. But something that is almost never discussed is the difficulty older farmers face when they want to pass the baton. Often, there are huge financial reasons why older farmers have trouble passing on the family business.

We hear a lot about the estate tax being a problem, but it just simply isn’t a factor in most cases. Nevertheless, Congress just passed a tax overhaul that increased inheritance tax exemptions for a farm couple to something close to $24 million. But an average family farm where a husband and wife own 240 acres and a machinery lineup large enough to tend that and another 800 acres of rented land probably has asset values equal to under $2 million.

That’s only if they don’t have debt. Farmers who have USDA’s reported average 12% debt-to-asset ratio—an average across the entire Ag sector— owe around $200,000. However many farmers owe much more than that because large farms like those Congress favored with huge estate-tax exemptions are debt free but part of the overall average.

Small farms that make up the highest numbers of farms also carry most of the farm debt. There’s no free lunch. Declining grain, oilseed, and cattle prices paired with prohibitively high input costs and rent make breaking even a challenge for even the most experienced operators.

Machinery and land make up his only retirement fund because small farms are cash poor. The problem no one addresses is that if Dad—or Grandad—wants to pack it in and retire while making room for the kids, he faces a wall of debt and taxes. Everything Grandad owns is subject to local taxes and debt repayments if he keeps it, or capital gains and income taxes if he sells it.

Farm auctioneers get 10% for advertising and selling (maybe a little less for big auctions where owners can bargain that down) but either way it’s a chunk. And taxes are due on all of it. It’s a windfall for IRS and state revenuers that can push the total bill for selling well above 50%.

It’s the poorhouse for any farmer who fails to recover his total debts and taxes from a sale.

Even when he covers his taxes and debt, if Grandad sells the home place and machinery, it doesn’t leave much for the next generation. Chances are, if the kids have been helping on the farm, they are using his machinery. An older farmer can’t pass that along to the next generation if those assets are part of what he needs to retire. That’s why, for family farmers, raising the estate tax exemption has a hollow ring to it.

For that to mean much, you must first of all have an estate.

And what if older farmers facing an avalanche of bad luck suddenly find themselves taking out loans that may outlive them? There can be no end to it.

Small wonder that both farm auctions and suicide among farmers are on the rise.

National Young Farmers Coalition research shows while the average age of farmers has increased by 10 years to 58 in the last 20 years, old farmers now outnumber young farmers six to one.

On the surface it looks as though aging farmers who won’t get out of the way are the problem. But they can’t get out of the way because they can’t afford to. They are trapped by lack of profitability and debt. And that gets back to farm policy.

It’s a problem that’s likely to continue until a money-following, PAC-driven Congress obsessed with problems of the ultra-rich finally sees the problems real farmers face.

Until then, the next generation, and the oldest generation, will just have to wait.

Richard Oswald, a fifth-generation farmer and president of the Missouri Farmers Union, lives in Langdon, Missouri.

 

 
Topics: Ag and Trade

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