Beginning farmer: land, with Mike Downey

Shay: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Mike Downey of NextGen Ag. Mike, how are you today?

Mike

Downey: I'm doing great, Shea. Thank you.

Shay: I really appreciate you taking the time. And today's conversation is really the beginning of what we're calling the Beginning Farmer Series. And this, uh, this idea is directed at those who are maybe just getting started who are some people in the industry that you can make connections with, and what are some of the processes you need to be thinking about as you step into farming in today's climate. So I'd like, Mike, if you could give a little bit of a background on, on who you are and then what NextGen Ag is and how you might work with beginning farmers.

Mike

Downey: You bet. Well, yeah, I grew up on a family farm down in west central Illinois near Roseville, and Going back 20 years ago when I was coming out of University of Illinois, I did not have the opportunity to go back to my own family farm. I remember the back then the price of corn back in the late '90s to 2000 was about $2 a bushel and beans were around $5.50. So our family farm was already supporting a couple families as it was. So my first job took me to Eastern Iowa where I'm still at today. And initially worked in the farm management industry. And then I took an interest in transition planning. Now an associate with Farm Financial Strategies, which historically has worked with family farms where there is an heir to pass the family farm down to.

And then back in 2018, 3 of us founded NextGen Ag Advocates, actually founded by 2 farmers from Iowa, and one of those retired back in 2015 after 40 years of farming, did not have a successor of his own. And just felt, you know, we, we need an entity to help others like me that do not have a successor, but just doesn't want to rent the farm out to anybody, you know, wants to, you know, make sure that they're a good match on finding a producer to take over the operation and In his case, he transitioned the entire operation, the equipment, even maintained most of the landlord relationships he had to transition that all to a young producer that, you know, was still part of the community, would support the local businesses, schools, ag businesses, and so forth. So that's the big concern we have is just the consolidation occurring, as you know, as we've all seen.

Shay: So I want to start with a little bit of a staggering statistic. Uh, you know, upwards of 40% of farm operations that exist today do not have a strategic transition plan in place and/or do not have someone within the family or someone that they maybe even have identified right now of who they're going to transition to. So it's a space that when we're, you know, talking to the people that are listening to this podcast as beginning farmers, there's a lot of opportunity out there, but there's a lot of challenges, you know, starting by how do you get connected? How do you make sure that you're kind of the right fit? And how do you facilitate these conversations? I know as, you know, a lot of these operations transition out of either universities or out of different employment that they've maybe had for a period of time, it's a big step.

And there's a huge value in understanding what it is that you're, you know, headed into. So, Let's talk a little bit on how you guys work with making those connections and what that process looks like.

Mike

Downey: You bet. Yeah, that's a common question we get, and we can appreciate the challenge because I think everybody, when you think of your own community, you can probably think of 3 or 4 aging farmers that don't— no one knows clearly what their succession plan is, or there's not a successor. You're right, there is a ton of opportunity, but it doesn't mean it's easy, and not everybody feels comfortable going just knocking on doors. And so we, we like to talk or compare, you know, an exit strategy versus an entrance strategy. A lot of people focus on the exit strategy— how do I get out from underneath this, you know, 40 years of farming or whatever it is. Um, but for the young, you know, the younger generation, we like to talk about the entrance strategy. And what that is. And, um, you know, is the strategy just to outlast dad and hopefully have the opportunity to finally take over?

Or, you know, is there a network that you can build? And, um, you know, I know you folks, you work a lot with collaboration and peer groups, and we're seeing a lot of that too. And a lot of the younger generation kind of thinking outside the box and how can we work together so at least these farms stay in our community. You know, and that's— so we're seeing more and more of that. And then just who your team is, you know, the lender, the consultant, you know, so forth, that team and building that network to look for opportunities. And then if there are some neighboring farmers, you know, is there ways we can open the door to a conversation with them? You know, maybe it just starts out as doing some custom work or, you know, helping out where they need help in that operation and just slowly building that relationship.

And I guess the last comment I'd make, Shay, you probably appreciate this too, is whether it's we're working with a retiring farmer or beginning farmer or somewhere in between, it always comes down to— seems like comes down to cash flow. And so we're also seeing, you know, a lot of the younger producers get creative on, you know, what's some other revenue sources to help support as they build into an operation, you know, whether that's a seed business or having, you know, their own consulting business of some kind, or, you know, a livestock operation that can offer some cash flow, and, you know, all kinds of things. There could be something not even related to agriculture for that matter.

Shay: I think in today's environment, that diversification is crucial when you think about jumping into it. If you don't have a sizable, you know, operation to step into, or maybe you don't have the whole piece of that, you need to be cognizant of that cash flow opportunity there. One thing that you hit on was collaboration. And I'm going to tell a brief story here, looking back at a collaborative opportunity, the consultant Chris that I work with, you know, A number of years ago, he had a gentleman in the community come to him and say, you know, I've had all these people come and ask me what my plans are after retirement. But they're, but they're not really asking what I want to do or who I am as an operation. They're asking to rent my ground. And he goes, to be frank, it kind of pisses me off because I'm not ready to do that yet.

You know, I got, I got 5 years or 10 years that I still want to be around. But at the same time, I want to have that conversation with someone who cares. And so Chris just kind of started asking questions on, you know, what's the ideal scenario? What does your future look like? What did— what do you see as your involvement as you go through the strategy? And long story short, kind of through that, they ended up working together and collaborating. Today in their operation, in Chris's operation, they farm with 8 different entities that utilize one line of equipment.

Now that's a little bit on the extreme end of this example of what collaboration might look like, but what I would encourage so many of the beginning farmers out there to think about when they go to have these conversations, whether it's with people in their community that maybe don't have a clear succession plan, or even within their family, as they think about how do I enter the family operation and what value do I bring? Sit down and say, what are your goals? What does the future look like? What's your ideal scenario? And then maybe explore ways that you could have some synergies, have some ways that you can work together in a collaborative effort. And I think there's a lot more value in that as opposed to just saying, hey, you know, I'm interested in cash renting your ground, here's what I can afford.

You know, just because it cash flows doesn't mean that's the, that's the best scenario. And, and in a lot of the instances, what we see with transitioning operations that don't have someone to transition to, it is way more important to them, like you said, that they find the right person that might continue to be involved in the community, or maybe it's, you know, they're a young family looking to grow into the operation and into the business. So any last thoughts, I guess, on that from a collaborative standpoint in your mind?

Mike

Downey: Well, you know, as far as goals, you hit it on the head that, you know, I think as an industry, there's a lot of focus on rent. But as we spend a lot of time you know, vetting people that we're matching up. We spend a lot of time on understanding those goals and a lot, you know, certainly receiving a fair income is important, but a lot of times there's a lot of other things that are up there right alongside it, you know. Just, you know, when you think about it, a, you know, a farmer taking care of their land for 40, 50 years, you know, there's definitely gonna be a lot of other factors that they're gonna consider as far as care of that land and stewardship. And a lot of times there's the little things that, you know, we lose focus to that can turn into being big factors. And as well as just, you know, matching up personalities and someone that maybe can work with their kids.

If there are kids that we're going to transition the land to, that they can work with this young producer or this family that we're going to transition the operation over to. So, you know, that certainly, uh, is very important. You know, I'm thinking of several right now that I'm working with where that, that next generation might be teaming up with a neighboring operation, maybe not on the full line of equipment but certain pieces. You know, obviously seeing a lot of, you know, collaboration, you know, whether it's a custom sprayer or combine and those big ticket items. As you know, for some operations, machinery is just as a large part of the budget is the land cost. And so definitely, uh, you know, to a certain extent, the older generation I see is a little more guarded as a general rule and wants to be a little bit more self-sufficient.

The young generation, I think, is a lot more open to figuring this out. How can we work together?

Shay: I think it's really important to have those discussions, especially when you talk about the difference in who the senior partners in the operation are, but also maybe their kids or their grandkids that are actually going to be the land managers, how do you develop that relationship? And we talk a lot about who are the key influencers and who are the key decision makers in that operation. Because just, just because the senior partner is the one that's worn the hat for so many years doesn't mean that the spouse is not heavily, uh, you know, making the decisions on what's going on there, or that the kids don't have a significant influence. And again, that's where it just comes back to asking the right questions. What does your future look like? How do you envision the legacy of your operation?

If you're working with someone down the road, what's your ideal scenario of how they interact with your family? And what does it look like, you know, 10, 15, 20 years down the road? Not just what does it look like tomorrow and 2 years down the road. So I think that's a good background kind of from a collaborative standpoint. Another area that I wanted to touch with you specifically is looking at different structures and different, you know, I guess I would call it maybe negotiation strategies or areas of mutual benefit when it comes to renting versus leasing versus crop sharing versus owning land. I mean, there's all these different variables. And when you think about it as a beginning farmer, one, what's right for the person that you're potentially collaborating with or working with in the transition process? Two, how do you make it cash flow? And three, what's the best option?

Because there's a lot of things out there that can make this environment a little bit confusing, particularly if you are in an area that is just top-dollar cash rent. So can you speak to that a little bit?

Mike

Downey: Sure. Yeah, I mean, there's, you know, tons of strategies that I'm I know you folks are working with too, depending on the situation. Certainly where we see, you know, farm ownership transferring to multiple children in the next generation, we favor some type of entity. Whether that's, you know, traditionally there's been a lot of trust planning, land trusts or corporations. Today seems like more entities like partnerships, LLCs, or Family limited partnerships are more popular just because of their flexibility. And, um, but creating an ownership structure for, hey, the kids can own it, but, um, we call it boomerang rules. They can own it, but if they decide to sell it, hopefully the farm always comes back to us and others in the family have opportunity to own that. And if there is an active heir, lease it.

If we're transitioning the farm operation to a non-family heir, that non-family heir has, you know, an option to lease that ground, which is probably a very important part of their operation. And we're also seeing, you know, some even consider, hey, non-family successor, if no one in our family steps up and wants to buy out the others, hey, we'll give you a second option to buy into this land entity. So that's kind of neat to see that, and gives them some skin in the game. And But on the flip side, if none of the kids have an interest, hey, we're seeing a lot of folks, you know, consider other ways to just transition the land to that non-family successor. You know, a traditional land contract installment sale is a beautiful strategy right now. We're thinking of one Illinois farm couple that is considering selling the ground at its cost basis to the non-family.

Uh, it's actually a young couple with 4 children, um, that could potentially carry on their farm for multiple generations, right? They just soon help a young couple with a discounted sale than give half of it away to the state of Illinois or the federal, you know, and federal estate tax or transfer tax. So, uh, so certainly if there's ways we can hotwire it to accomplish the goals versus always kicking the cow down kicking the can down the road to do it through the estate plan. Sometimes, you know, we, we also favor those.

Shay: One of the coolest parts about a scenario like that, that you just described, is the people that are making that transition are around when it happens, you know, and so you don't have to wait until you die to have someone else benefit from the opportunity. You're able to see and implement and really just understand what the legacy is by passing it on. And there's people probably listening to this right now chomping at the bit like, yeah, I would love an opportunity like that, but how do I even, how do I even start? You know, how do we have these conversations? And, you know, that's kind of why I wanted to talk with you on that today is just getting people thinking that, hey, there are these opportunities out there. It is important to have these conversations and it, it does happen. It happens frequently.

And I think as we see more and more transition, you know, whatever the current statistics are on the significant number of people that will be transitioning land and that will be exiting farming in the next number of years, how do we kind of take advantage of that as beginning farmers? How do we take the opportunity to get started? And who are the people that we want to connect with? You know, so I think like yourself and your team that you have there at NextGen Ag Advocates and the work that you do, I think you guys are doing a phenomenal job. Chris and I at Ag View Solutions, we do a lot of these conversations on just saying, what are some collaborative opportunities? How can we work to integrate these operations together?

And what are effective strategies, not only when we go from the business transition and succession planning, but also the estate planning, just to make sure that it makes sense from the tax and financial perspective as well. Anything else that you want to hit on when you think from your perspective of someone, you know, a farmer that's looking to get involved in the industry today, uh, you know, commodity prices, it's a pretty volatile market right now, maybe have some looming inflation ahead, um, just a lot, a lot of questions going on in the ag industry. Any last thoughts that you have or any advice that you would give to beginning farmers looking to get started here?

Mike

Downey: Sure, yeah, you know, and You know, first of all, you know, sometimes I think it's easy to just kind of brush it off that, you know, the capital required today to get into farming, you know, everybody realizes that's, you know, a very major restraint. But if it's, if you got it really in your belly, the, you know, what we call the, you gotta want it, you know, and willing to, you know, actually, kind of think outside the box and really, you know, try to seek out those opportunities, that network, ask some questions. Sometimes I've had retiring farmers tell me that, well, I didn't know that a family down the road would have been interested in my operation, you know. But so it sometimes it's a two-edged sword that the young producer didn't want to offend them like you mentioned earlier, but on the flip side, uh, maybe the aging generation didn't realize they had an interest.

So, but just figuring out how to open those doors. And that's really why we put together our matching program, is just to be an unbiased third party to help with that. A lot of the matches we're making, quite frankly, aren't ones that a retiring farmer is coming and saying, help find me a producer. It's— they've maybe already found a match or 2 or 3, and they just need help, you know, having, you know, figuring that transition plan out. And how do we deal with the equipment and the tax burden and Um, just having a third party kind of keep a little, uh, separation from business and personal as well. So, uh, I don't think any of that's rocket science stuff, Shay, but it's just sometimes you just got to do it. You got to start. And that's sometimes the hardest part of it.

Shay: And I, I think that's so crucial too. You know, it's not all these scenarios of we don't have someone to transition to or what in the world are we going to do with our future, but even working into current family operations. There's just a lot of questions on how you do it. It's like, uh, it's like buying crop insurance, right? It's the most difficult thing that you do once a year. Well, transition planning is the most difficult thing you do once in your life, you know, hopefully. And so how do you work through that process? And I, you know, that's, that's why we've been so happy to connect with you and what your team's doing there, because, you know, even being in the same space in the industry, there's no shortage of farm operations to help. Uh, there's no shortage of people that are experiencing this thing.

And I think, uh, You know, as, as consultants or facilitators or coaches or whatever you want to, you know, call it, it's important to have that perspective. Maybe not for just saying, hey, here's what you should do, but maybe more importantly saying, hey, here's some things to avoid. You know, here's some things that we've seen that, you know, maybe don't work as well. And, and how do you avoid those stresses? How do you avoid the financial burden? And how do you just look at implementing that more effectively? And so I just, I really commend your team for all the work that you're doing. If someone is listening to this and may be interested in learning a little bit more about what you guys do, how can they find out more about NextGen Ag?

Mike

Downey: Great place to start would just be jump on our website, NextGen— excuse me, nextgenag.us is our website. You'll kind of see our different programs we're working with, the farm financial strategies, site is farmestate.com where we're working more on the estate planning and transition work with, uh, multi-generational farms.

Shay: So that's fantastic. Any final thoughts here, Mike?

Mike

Downey: No. Hey, I look forward to hearing your series coming up. Uh, you know, that's a very popular question I get from young producers. We have no shortage of young producers signing up with our kind of our match, uh, Century Match program we call it. Um, but the challenge is getting the awareness out there to the aging generation, you know, that, hey, there's other options out there other than just lining up your equipment and having a farm sale, you know. And so that's, uh, that's been the challenge for us, but it's— we are gaining some momentum, which is encouraging. We're never going to probably stop the trend of consolidation in the industry, but we at least we're going to try.

Shay: Yeah, absolutely. Mike Downey at NextGen Ag, thank you so much for taking the time to have this conversation.

Mike

Downey: Thank you.

Shay: And if you're a beginning farmer listening to this podcast, I would encourage you to stay tuned as we continue on through this series. We're going to be talking next here, looking at lending opportunities, how you get started on that end, with many more topics to follow. Thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.