Breaking free from the chains of the past Where
truth moves faster than a Holstein calf No law
waiting on some printed page We're charting new
ground in the digital age From genomic codes
to robot facts We cut through the noise, no hold
them back not your daddy's dairy news tonight
we're sparking Welcome back to the Bullvine Podcast,
where we cut through the dairy industry noise
to get you the insights that actually matter
for your operation. Yep. We are not here to fluff
up the numbers, and we certainly aren't here
to give you the corporate line. We are not. We
are here to talk about what keeps the lights
on, the milk in the tank, and, crucially for
today, the name on the mailbox. That's right.
And today we are diving deep into a feature piece
titled Legacy in the Barn. Right. And I've got
to tell you, when I first saw that title, my
brain immediately went to, OK, here comes another
dry lecture on wills, estate taxes and legal
jargon. I was ready to glaze over. I had the
exact same thought. But this isn't that. This
isn't about legal paperwork. This is about survival.
It really is. Yeah. We're talking about the elephant
in the room or, you know, maybe the elephant
in the parlor. Uh -huh. Right. Succession. It's
the topic that dominates coffee talk at every
farm meeting, every conference, and frankly,
every kitchen table across the country. Oh, absolutely.
But usually those conversations are, they're
full of emotions and assumptions. Today, we're
bringing hard numbers to the table. And the stakes
couldn't be higher. We aren't just talking about
keeping the farm name on the sign out front.
We're talking about whether the herd, the genetics
you've spent 40 years building, the soil health
you've cultivated actually survives as a business
entity. Because as we are going to see, you can
have the best will in the world and still bankrupt
the next generation. Exactly. And the tease here,
the part that's going to make some people uncomfortable.
is that the source material argues that trying
to be fair to all your children is often the
exact mechanism that kills the farm for the one
child who stays. They call it a dispersal in
slow motion. That is a chilling phrase, dispersal
in slow motion. Isn't it? It means you don't
sell the cows the day after the funeral, but
you saddle the business with so much debt to
pay off the non -farming siblings that you spend
the next 10 years slowly bleeding out until you
have to sell anyway. It's a slow death by a thousand
cuts, financially speaking. That's exactly what
it is. So let's unpack this. We need to start
with the cold, hard reality of the odds we're
facing. Let's do it. The source material drops
a number right out of the gate that just, it
sort of stops you in your tracks. 16 .5%. Yeah,
16 .5%. That is the percentage of dairy farms
that actually make it to the third generation.
It's shockingly low. Let's break down where that
math comes from because it sounds... Almost unbelievable.
It does. This comes from the University of Tennessee's
workbook, something called Planning Today for
Tomorrow's Farms. They look at family business
research broadly. So this isn't even just dairy
specific. This is all family businesses. Exactly.
The rule of thumb, and this applies to hardware
stores, construction companies, you name it,
is that about one third of family businesses
survive the first transition from founder to
the second generation. Okay, so you lose two
-thirds right off the bat. Gone. That's already
a staggering drop -off. You look around your
township, and for every three new barns going
up, only one is going to have the son or daughter
running it in 20 years. It's a sobering thought.
And it gets worse. How? Because of that one -third
that survives. Only another one -third survives
the second transition to the third generation.
So a third of a third. A third of a third. You
do the math and you land at roughly 16 .5%. That
is brutal. It is. When you think about it, you
look around your county, look at six of your
neighbors. Statistically, only one of you is
going to have grandkids running that same operation.
Right. It puts a real damper on the romantic
idea of the century farm. It's brutal, but it's
also a reality check. Yeah. And we need to talk
about why. Yeah. It's not just bad luck. No,
it's not. The source material points to a few
specific drivers and one of them is just the
sheer grind of the industry. Oh, absolutely.
This is where the rubber meets the road. You
can show me spreadsheets all day, but dairy is
a 365 day a year mental and physical marathon.
The source mentions a 2024 doctoral thesis from
the University of Manitoba. They studied farmers
in Western Canada and Ontario and the findings
are, well, they're validating, but they're sad.
What stood out to you in that study? The stress,
high reports of injuries, chronic aches, but
mostly the mental load. And here's the kicker.
What's that? The stress levels weren't significantly
different whether you were in a tight stall barn
or a fancy new free stall, or whether you milked
in a parlor or had robots. That is interesting
because the sales pitch for robots is always
better lifestyle, less stress. You invest a million
dollars in those blue or red boxes and you're
supposed to be sipping margaritas on a beach,
right? Right. But the study found that the stress
comes from the responsibility and the economics.
Not the physical labor itself. No. It's the weight
of the debt, the volatility of the milk check,
the weather. You can't robot your way out of
a market crash. Right. And the point is, the
kids see this. They live it. That's the kitchen
table sentiment the article talks about. Exactly.
If your kids grow up watching you drag yourself
into the house at 9 .00 p .m. after dealing with
a prolapse or a Birkin scraper. Yeah. And then...
They see you sitting at the table stressing over
cash flow because the butterfat dropped two points.
They absorb that. They aren't blind. They see
the cost. Not the financial cost, but the human
cost. The human cost. That's a great way to put
it. The quote in the article really hit home
for me. It was a young person saying, I love
the cows and the genetics, but... I'm not sure
I want to live exactly like my parents did. And
you can't blame them. You just can't. That is
the first hurdle. Before you even get to the
bank, you have to convince the next generation
that this is a life worth living. It's true.
If we don't address the lifestyle and the burnout,
the rest of this conversation is academic because
there won't be anyone to take over. A really
good point. So we have the human element, the
burnout, the low odds. Now let's pivot to the
financial reality because this is where that
fairness trap. really starts to form the numbers
the numbers dairy has become intensely capital
heavy capital heavy is a polite way of saying
it's incredibly expensive just to exist in this
industry right the source cites a 2021 agriculture
journal paper it was looking at data from catalonia
but it mirrors what we see in north america dairy
carries the highest fixed capital land and buildings
compared to almost any other ag sector. Think
about it. If you're growing corn and soybeans,
you need land and machinery. You need storage
bins. Sure. But you don't need a milking parlor.
You don't need complex manure handling systems
for liquid waste. You don't need distinct facilities
for calves, heifers, dry cows, and lactating
cows. All those specialized expensive buildings.
And in Canada, you have the massive capital cost
of quota on top of all that. And land values
are only going one way. Yep. USDA numbers. provincial
numbers. They all show rising land values due
to urban sprawl and competition from crop farmers.
So on paper, the dairy farmer looks rich. The
balance sheet is huge. Land rich, cash poor.
It's the oldest cliche in farming because it's
true. It is. And that is where the danger lies
for succession. So let's look at the ROI, the
return on assets. This is where it gets really
interesting. The source brings in the 2024 Minnesota
Finman Ride Report. Okay. Now, 2024 was actually
a decent year for dairy compared to 2023. Net
income was up. Milk price was up. It was a breather
year. We finally caught a break. A little one.
A little one. But, and this is a huge but, the
average Minnesota farm return on assets was only
2%. 2%. 2%. You know, if I went to a generic
financial advisor in the city and said, I have
a business with millions of dollars in liability,
incredible physical risk, 365 day labor requirements,
and I'm going to make a 2 % return on my assets.
They would tell me to liquidate. They'd laugh
you out of the office. They'd tell me to put
the money in a high yield savings account. Right.
You could get 4 % or 5 % in a safe bond right
now with zero work. So why do farmers do it?
Because it's not just an investment. It's a livelihood.
It's a legacy. And honestly, on a cash flow basis,
you can make a living. You can pay the bills.
You can pay your bills. You can buy groceries.
You can send kids to college. But 2 % leaves
zero slack. It means the margin for error is
razor thin. And that 2 % figure is the linchpin.
It is the core reason why the fairness strategy
fails. This is the heart of it. This is the core
of the deep dive today. We need to follow the
money to understand why treating your kids equally
in the will destroys the business. Let's run
the numbers. The article lays out a hypothetical
400 cow scenario. And this is key. For everyone
listening, even if you're milking 50 cows or
5 ,000, the ratios hold up. The math scales.
That's right. So here's the math. You have a
400 cow herd. Based on Finbean averages, the
asset breakdown looks something like this. You've
got $2 million in land and buildings. Okay, that's
reasonable. You've got $800 ,000 in cows and
replacements. And you've got roughly $700 ,000
in machinery. So total assets sitting around
$3 .5 million. That sounds about right for a
modern, reasonably equipped 400 cow dairy. Exactly.
Now let's say the parents have four kids. One
wants a farm. We'll call him the successor. The
other three have moved away, got jobs in town.
It's a typical story. Right. Maybe they come
back for harvest, but they aren't owners. The
parents want to be fair. And to them, fair means
equal dollar value. Which is the default setting
for most parents. I love my kids equally, so
they get equal shares. It makes emotional sense.
It does. So $3 .5 million divided by four kids
is $875 ,000 per kid. Okay. So the successor
gets their $875 ,000 share, which is great. But
to keep the farm, they have to buy out the other
three siblings. Exactly. The successor has to
come up with cash to pay the other three. That
is three times $875 ,000. That's a $2 .6 million
debt. Just pause there for a second. The successor,
who is likely already working for below market
wages to help the farm succeed, now has to go
to the bank and borrow. $2 .6 million just to
keep the doors open. That's right. They aren't
buying a new parlor. They aren't buying more
land. They are buying the right to keep working.
They're buying the equity that they probably
helped build in the first place. Yes. And now
here's where the cash flow crunch hits. Let's
talk about that. Servicing a $2 .6 million debt
principle and interest, you are looking at annual
payments of roughly $250 ,000 to $300 ,000. Okay,
let's translate that to the milk check. Put it
in terms of farmer understands. Let's do it per
cow. If you break that down by cow, That debt
load is costing you $600 to $750 per cow per
year. $600 to $750 per cow every single year.
That is insane. And now you have to compare that
to the profit. Yeah. The FinBeyond report showed
that high profit herds, the best of the best,
the top 20%, they made about $773 per cow in
net return. Whoa, whoa, whoa. Let me just restate
that to make sure everyone heard it. Please do.
The profit you make on a cow in a good year is
roughly $770. The debt payment you have to make
just to pay off your siblings is $750. Correct.
You have $20 left per cow. $20. For the entire
year. That is the slow motion dispersal. You
have taken 100 % of the profit out of the business
and mailed it to the non -farming siblings? It's
gone. That leaves $0 for replacing the skid sear
when it dies, $0 for upgrading the ventilation,
$0 for fresh cow protocols. And, God forbid,
milk prices drop or feed costs spike. Right.
If you have a bad year, you're underwater immediately.
You're cannibalizing equity just to make the
buyout payments. This is why I called it a death
sentence earlier. You cannot expect a business
generating a 2 % return on assets to pay out
75 % of its equity at full market value. The
math simply does not work. It's mathematically
impossible. So the parents feel good because
they were fair. The non -farming kids feel good
because they got a nice check. And the farming
kid goes bankrupt in five years. Or... More likely,
they struggle for 10 years, living in poverty,
letting the facilities degrade until they finally
burn out and sell. The slow bleed. The slow bleed.
Yeah. So how do we reframe fairness? The source
material references Farm Credit Canada and a
specialist named Rick Ruseboom. He has a great
line. What is it? One million dollars in assets
is not one million dollars in cash. That is the
crucial distinction. That needs to be on a billboard.
It does. The non -farming kids need to understand
that their sibling isn't inheriting a lottery
ticket. No. They're inheriting a job, a very
expensive high -risk job. And a mountain of responsibility.
The article also talks about sweat equity. This
is a huge piece of the puzzle. Huge. We need
to acknowledge that the child who stayed often
accepted lower wages for years, contributing
to the growth of those assets. Absolutely. If
the farming son or daughter has been working
for $40 ,000 a year when they could have been
making $80 ,000 in town as a heavy equipment
operator, that difference is an investment they
made in the farm. That $3 .5 million asset base
exists partly because of their underpaid labor.
To turn around and charge them full market value
for it is actually unfair. It's charging them
twice for the same equity. That's a fantastic
point. You're buying what you already helped
build. Exactly. So this brings us to the solution
phase. We've identified the problem. The math
doesn't work. But the 16 .5 % of farms that survive,
they do something different. They have to. They
use different structures. Right. You don't have
to just hand over the deed and a massive mortgage.
The most common structure the article highlights,
especially in Canada and increasingly in the
U .S., is separating the business into a holding
company and an operating company. The two -company
model. Let's break that down. How does it work?
Okay. Think of it as two separate buckets. Bucket
A is the holding company. This is where you put
the heavy assets, the land, the buildings, and
in Canada, the quota. The parents or the family
trust own this bucket. So the parents keep their
name on the land. That provides them security.
Exactly. It's their retirement fund, their landlords.
Then you have bucket B, the operating company.
And what's in that bucket? This company owns
the cows, the feed, the small machinery, and
the checking account. The successor buys this
company. Ah, so they're not buying the land.
Not right away. Why is that better? Because the
operating company is where the cash flow is.
It's where the turnover happens. The successor
can afford to buy the cows in the feed because
those assets generate immediate cash. They aren't
drowning in the debt of buying $2 million worth
of land that has a 2 % return. So the successor
runs the show, owns the cows, pays the bills.
What is the relationship with the holding company?
The operating company pays rent to the holding
company. Like any other business renting a building.
Precisely. That rent becomes the parent's retirement
income. It's a clean, business -like transaction.
That makes so much sense. The successor focuses
their capital on high -turnover assets, cows,
butterfat, managing somatic cell counts, rather
than serving a massive mortgage on dirt. And
it allows for a gradual transition. Eventually,
the successor might buy shares in the holding
company over 20 years, or maybe upon the parents
passing, the non -farming kids inherit shares
in the land company and just collect rent. Like
passive investors. Exactly. While the farming
kid runs the operating company, it separates
the business of farming from the business of
owning real estate. That distinction is key,
and it leads perfectly into the next big decision
the survivors make, building a leader. The article
makes a strong point that you can't just treat
the successor as a grunt for 20 years and then
hand them the keys. This is a pet peeve of mine.
I can imagine. You see it all the time. The boy
is 45 years old, but dad still signs every check
and decides when to cut the hay. Right. That
is not a succession plan. That is a servitude
plan. The source cites a 2018 rural sociology
article from the UK that talks about the value
of off -farm experience. Yes. It suggests that
young farmers who leave and come back bring an
entrepreneurial mindset. I cannot stress this
enough. If you are a young person listening to
this or a parent, get off the farm. Go work for
someone else. Why is that so valuable? Is it
just about seeing how others do it? It's about
accountability. When you work for your dad and
you mess up, you might get yelled at at dinner,
but you probably won't get fired. Good point.
When you work for a stranger, you learn real
accountability. But more importantly, you learn
different systems. The article gives some great
examples of that. It does. Working as a herdsman
elsewhere, you might learn totally different
fresh cow protocols. Right. Or a different breeding
strategy. Exactly. Go work on a 2 ,000 cow dairy.
See how they manage transition cows. See how
they handle employee scheduling. Or go work for
a genetics or nutrition company. And learn the
business side. Learn to read components. Learn
to calculate cost per hundredweight. The Brazilian
study mentioned calls this absorptive capacity,
the ability to bring new knowledge home. It's
seeing the world outside your own lane. If you
only know how your dad did it, you will only
do what your dad did. And in this market, that's
not enough. You have to innovate. You need to
be able to come home and say, hey, I worked at
a place that used sand bedding and their somatic
cell count was half of ours. Here's the math
on why we should switch. That is leadership.
And once they come back, the article insists
on a trial management period. Yes. Not just welcome
home. Here's a shovel. But here are the keys
to a department. This is huge for the lenders,
too. The article outlines a two year trial. You
don't just say you're in charge. You say, OK,
for the next two years, you are in charge of
fresh cows. And you track specific metrics. The
source suggests. Tracking transition disorders,
early cull rates, and peak milk. Real numbers,
tangible results. If the early cull rate spikes
under their watch, you have a problem to solve.
If peak milk goes up, you have a win. Hand them
the cropping. Right. You decide the seed varieties,
you manage the harvest crew, then we measure
forage quality and cost per ton of dry matter.
It validates that the successor isn't just a
last name. They're a manager. Exactly. When you
walk into the bank for that succession loan and
you can show a binder that says, in the two years
my son ran the cropping program, our relative
feed value went up 15 points and our cost per
ton went down. The banker is going to listen.
The banker is going to say, where do I find?
It's de -risking the whole proposition for them.
Totally. Let's look at the bigger picture now.
We have the structure. We have the leadership
training. But who helps putting this all together?
This can be overwhelming. It's a lot. The source
introduces a concept from Ireland, from TGASC,
called multi -actor succession teams. I love
this concept because right now in North America,
the typical succession planning process is a
mess of mixed signals. How does it usually go?
Walk me through the disaster scenario. You go
to your accountant and they say, do this to save
taxes. Then you go to your lawyer and they say,
do this to protect the estate. Then you go to
the lender and they look at the plan and say,
we can't finance this. There is no cash flow.
And the family is stuck in the middle playing
telephone between all these advisors. Exactly.
The TGASC model puts them all in one room at
the same time. The accountant, the lawyer, the
lender, and crucially, a family coach or facilitator.
The benefit seems obvious. You stop the he said,
she said. And you get a reality check. The lawyer
might draft a beautiful will that splits the
assets four ways, and the lender can speak up
right there and say, if you sign that, I will
have to foreclose on the farm the day you die
because the business cannot service that debt.
You need that conflict to happen in the planning
room, not at the funeral home. That's powerful.
It forces a practical solution, not just a legal
or tax one. It forces a viable solution. That
brings up the toughest scenario of all. What
if there is no successor? What if the kids, despite
your best efforts, just don't want it? It happens.
And it is happening more often. But the default
reaction is usually panic, followed by a total
dispersal sale. The auctioneer comes in and everything
goes. Everything. The article suggests there
are other ways to exit with your legacy intact.
Like what? It mentions things like land access
policy incentives and the transition incentives
program. Okay, what does that mean in plain English?
It means there are young people out there desperate
to farm who don't have the capital to buy in.
You can look at long -term leases. You can look
at a staged sale to a key employee. Maybe that
herdsman who has been with you for 15 years and
treats the cows like his own. So phasing out
ownership while keeping the land. Yes. Maybe
you sell the cows and machinery to a young neighbor,
but you keep the land. and sign a 20 -year lease.
You get the rental income, the neighbor gets
a land base without a $2 million mortgage, and
your land stays in production. It's not the dynasty
you might have dreamed of. No, but it keeps the
farm alive. It keeps your legacy in the barn.
We have covered a lot of ground here, from the
brutal 16 .5 % statistic to the fairness trap
to the holding company structure. A lot to chew
on. It is. Now, I want to get tactical. Let's
do it. All right. A farmer is listening to this
right now. They just finished milking. They're
driving to the feed store. What are the three
concrete things they need to do to avoid being
a slow motion dispersal? Okay. I've broken this
down into immediate, medium, and long term. Perfect.
Start with immediate. This week? Immediate. The
agenda and the question. First, put succession
on the official meeting agenda, not the dinner
table chat, the business meeting. Write it down.
Make it official. Make it official. Second, the
next time you see your accountant or lawyer,
look them in the eye and ask, how many farm successions
have you structured in the last five years? That
is a bold question. It is necessary. If they
say, oh, one or two, or we do mostly standard
wills, you need to find a specialist. You wouldn't
let a foot trimmer do surgery on a twisted stomach.
Don't let a generalist lawyer do surgery on your
multi -million dollar business. Oh, good analogy.
Okay, medium term. Three to six months out. Medium
term. The timeline and the fair talk. Sketch
out the timeline. Write down your age and your
successor's age. Identify a step -back date.
Be honest. When does dad stop signing checks?
Put a date on the calendar. Yes. And then have
the fair versus equal conversation before the
lawyers drop the papers. Ask the non -farming
kids what fair looks like to them. You might
be surprised. They might not want what you think
they want. They might just want a cottage on
the lake or help with a down payment on a house.
They might not want to bankrupt their brother.
Great point. And long term, one to two years.
Long term. Structure and metrics. Document the
leadership. Assign specific areas like we talked
about. reproduction or cropping, and track the
KPIs. Prove the successor can run it. Build that
binder for the bank and investigate the two -company
structure. Talk to that specialist you found
about separating the holding company from the
operating company. Build a structure that protects
the parent's retirement without strangling the
successor's cash flow. That is a powerful checklist.
It moves this from a vague worry to a manageable
project. That's the goal. We have to stop treating
succession like a taboo subject, like it's about
death. It's a business process. Treat it like
one. This has been an incredibly eye -opening
deep dive. The difference between the 16 .5 %
who make it and the rest, it isn't luck. No,
it's planning. It's structure. It's having these
tough conversations. Absolutely. Remember, if
your succession plan relies on a 2 % ROA business
paying off 100 % of its equity, you aren't planning
a legacy. You're planning a sale. For the full
breakdown and more straight talking analysis,
head to www .thebullvine .com. Subscribe wherever
you get your podcasts. We are out with new episodes
every day. Keep your boots clean and your pencil
sharp. Coming up next, we're going to be talking
about genomic selection. Is it hype or is it
the only way to stay competitive? You won't want
to miss it. Thanks for listening.