WEBVTT 00:00:11.720 --> 00:00:15.060 Breaking free from the chains of the past Where 00:00:15.060 --> 00:00:18.820 truth moves faster than a Holstein calf No law 00:00:18.820 --> 00:00:21.660 waiting on some printed page We're charting new 00:00:21.660 --> 00:00:25.300 ground in the digital age From genomic codes 00:00:25.300 --> 00:00:29.120 to robot facts We cut through the noise, no hold 00:00:29.280 --> 00:00:32.460 them back not your daddy's dairy news tonight 00:00:32.460 --> 00:01:03.619 we're sparking Welcome back to the Bullvine Podcast, 00:01:03.840 --> 00:01:05.879 where we cut through the dairy industry noise 00:01:05.879 --> 00:01:08.159 to get you the insights that actually matter 00:01:08.159 --> 00:01:11.180 for your operation. Yep. We are not here to fluff 00:01:11.180 --> 00:01:13.260 up the numbers, and we certainly aren't here 00:01:13.260 --> 00:01:15.239 to give you the corporate line. We are not. We 00:01:15.239 --> 00:01:16.959 are here to talk about what keeps the lights 00:01:16.959 --> 00:01:20.819 on, the milk in the tank, and, crucially for 00:01:20.819 --> 00:01:23.719 today, the name on the mailbox. That's right. 00:01:24.170 --> 00:01:27.329 And today we are diving deep into a feature piece 00:01:27.329 --> 00:01:31.129 titled Legacy in the Barn. Right. And I've got 00:01:31.129 --> 00:01:33.390 to tell you, when I first saw that title, my 00:01:33.390 --> 00:01:36.170 brain immediately went to, OK, here comes another 00:01:36.170 --> 00:01:39.290 dry lecture on wills, estate taxes and legal 00:01:39.290 --> 00:01:42.030 jargon. I was ready to glaze over. I had the 00:01:42.030 --> 00:01:44.310 exact same thought. But this isn't that. This 00:01:44.310 --> 00:01:47.049 isn't about legal paperwork. This is about survival. 00:01:47.310 --> 00:01:49.430 It really is. Yeah. We're talking about the elephant 00:01:49.430 --> 00:01:51.189 in the room or, you know, maybe the elephant 00:01:51.189 --> 00:01:54.159 in the parlor. Uh -huh. Right. Succession. It's 00:01:54.159 --> 00:01:57.180 the topic that dominates coffee talk at every 00:01:57.180 --> 00:02:00.219 farm meeting, every conference, and frankly, 00:02:00.299 --> 00:02:02.719 every kitchen table across the country. Oh, absolutely. 00:02:02.760 --> 00:02:06.340 But usually those conversations are, they're 00:02:06.340 --> 00:02:08.680 full of emotions and assumptions. Today, we're 00:02:08.680 --> 00:02:10.939 bringing hard numbers to the table. And the stakes 00:02:10.939 --> 00:02:13.080 couldn't be higher. We aren't just talking about 00:02:13.080 --> 00:02:15.139 keeping the farm name on the sign out front. 00:02:15.319 --> 00:02:18.900 We're talking about whether the herd, the genetics 00:02:18.900 --> 00:02:21.500 you've spent 40 years building, the soil health 00:02:21.500 --> 00:02:24.960 you've cultivated actually survives as a business 00:02:24.960 --> 00:02:27.840 entity. Because as we are going to see, you can 00:02:27.840 --> 00:02:31.400 have the best will in the world and still bankrupt 00:02:31.400 --> 00:02:34.599 the next generation. Exactly. And the tease here, 00:02:34.719 --> 00:02:36.599 the part that's going to make some people uncomfortable. 00:02:37.240 --> 00:02:40.180 is that the source material argues that trying 00:02:40.180 --> 00:02:43.099 to be fair to all your children is often the 00:02:43.099 --> 00:02:45.939 exact mechanism that kills the farm for the one 00:02:45.939 --> 00:02:48.900 child who stays. They call it a dispersal in 00:02:48.900 --> 00:02:51.620 slow motion. That is a chilling phrase, dispersal 00:02:51.620 --> 00:02:54.080 in slow motion. Isn't it? It means you don't 00:02:54.080 --> 00:02:56.300 sell the cows the day after the funeral, but 00:02:56.300 --> 00:02:58.360 you saddle the business with so much debt to 00:02:58.360 --> 00:03:00.860 pay off the non -farming siblings that you spend 00:03:00.860 --> 00:03:03.180 the next 10 years slowly bleeding out until you 00:03:03.180 --> 00:03:05.520 have to sell anyway. It's a slow death by a thousand 00:03:05.520 --> 00:03:07.879 cuts, financially speaking. That's exactly what 00:03:07.879 --> 00:03:10.840 it is. So let's unpack this. We need to start 00:03:10.840 --> 00:03:13.199 with the cold, hard reality of the odds we're 00:03:13.199 --> 00:03:15.620 facing. Let's do it. The source material drops 00:03:15.620 --> 00:03:18.840 a number right out of the gate that just, it 00:03:18.840 --> 00:03:21.699 sort of stops you in your tracks. 16 .5%. Yeah, 00:03:21.740 --> 00:03:25.020 16 .5%. That is the percentage of dairy farms 00:03:25.020 --> 00:03:26.939 that actually make it to the third generation. 00:03:27.319 --> 00:03:30.060 It's shockingly low. Let's break down where that 00:03:30.060 --> 00:03:32.909 math comes from because it sounds... Almost unbelievable. 00:03:33.250 --> 00:03:35.490 It does. This comes from the University of Tennessee's 00:03:35.490 --> 00:03:37.689 workbook, something called Planning Today for 00:03:37.689 --> 00:03:40.270 Tomorrow's Farms. They look at family business 00:03:40.270 --> 00:03:42.729 research broadly. So this isn't even just dairy 00:03:42.729 --> 00:03:45.789 specific. This is all family businesses. Exactly. 00:03:45.949 --> 00:03:48.710 The rule of thumb, and this applies to hardware 00:03:48.710 --> 00:03:50.789 stores, construction companies, you name it, 00:03:50.830 --> 00:03:53.270 is that about one third of family businesses 00:03:53.270 --> 00:03:56.930 survive the first transition from founder to 00:03:56.930 --> 00:03:59.860 the second generation. Okay, so you lose two 00:03:59.860 --> 00:04:02.020 -thirds right off the bat. Gone. That's already 00:04:02.020 --> 00:04:04.479 a staggering drop -off. You look around your 00:04:04.479 --> 00:04:07.080 township, and for every three new barns going 00:04:07.080 --> 00:04:09.759 up, only one is going to have the son or daughter 00:04:09.759 --> 00:04:12.780 running it in 20 years. It's a sobering thought. 00:04:12.979 --> 00:04:17.100 And it gets worse. How? Because of that one -third 00:04:17.100 --> 00:04:20.939 that survives. Only another one -third survives 00:04:20.939 --> 00:04:24.199 the second transition to the third generation. 00:04:24.839 --> 00:04:27.930 So a third of a third. A third of a third. You 00:04:27.930 --> 00:04:31.170 do the math and you land at roughly 16 .5%. That 00:04:31.170 --> 00:04:33.930 is brutal. It is. When you think about it, you 00:04:33.930 --> 00:04:35.889 look around your county, look at six of your 00:04:35.889 --> 00:04:38.490 neighbors. Statistically, only one of you is 00:04:38.490 --> 00:04:40.610 going to have grandkids running that same operation. 00:04:40.810 --> 00:04:43.550 Right. It puts a real damper on the romantic 00:04:43.550 --> 00:04:47.310 idea of the century farm. It's brutal, but it's 00:04:47.310 --> 00:04:49.649 also a reality check. Yeah. And we need to talk 00:04:49.649 --> 00:04:52.629 about why. Yeah. It's not just bad luck. No, 00:04:52.629 --> 00:04:55.209 it's not. The source material points to a few 00:04:55.209 --> 00:04:57.189 specific drivers and one of them is just the 00:04:57.189 --> 00:04:59.269 sheer grind of the industry. Oh, absolutely. 00:04:59.649 --> 00:05:01.930 This is where the rubber meets the road. You 00:05:01.930 --> 00:05:03.970 can show me spreadsheets all day, but dairy is 00:05:03.970 --> 00:05:06.990 a 365 day a year mental and physical marathon. 00:05:07.750 --> 00:05:10.990 The source mentions a 2024 doctoral thesis from 00:05:10.990 --> 00:05:13.550 the University of Manitoba. They studied farmers 00:05:13.550 --> 00:05:15.889 in Western Canada and Ontario and the findings 00:05:15.889 --> 00:05:19.149 are, well, they're validating, but they're sad. 00:05:19.389 --> 00:05:21.800 What stood out to you in that study? The stress, 00:05:21.980 --> 00:05:24.939 high reports of injuries, chronic aches, but 00:05:24.939 --> 00:05:27.240 mostly the mental load. And here's the kicker. 00:05:27.300 --> 00:05:30.459 What's that? The stress levels weren't significantly 00:05:30.459 --> 00:05:32.500 different whether you were in a tight stall barn 00:05:32.500 --> 00:05:36.079 or a fancy new free stall, or whether you milked 00:05:36.079 --> 00:05:39.240 in a parlor or had robots. That is interesting 00:05:39.240 --> 00:05:41.720 because the sales pitch for robots is always 00:05:41.720 --> 00:05:45.759 better lifestyle, less stress. You invest a million 00:05:45.759 --> 00:05:48.139 dollars in those blue or red boxes and you're 00:05:48.139 --> 00:05:49.860 supposed to be sipping margaritas on a beach, 00:05:49.959 --> 00:05:52.879 right? Right. But the study found that the stress 00:05:52.879 --> 00:05:55.319 comes from the responsibility and the economics. 00:05:55.839 --> 00:05:59.480 Not the physical labor itself. No. It's the weight 00:05:59.480 --> 00:06:01.839 of the debt, the volatility of the milk check, 00:06:01.980 --> 00:06:04.480 the weather. You can't robot your way out of 00:06:04.480 --> 00:06:07.040 a market crash. Right. And the point is, the 00:06:07.040 --> 00:06:09.439 kids see this. They live it. That's the kitchen 00:06:09.439 --> 00:06:11.459 table sentiment the article talks about. Exactly. 00:06:11.459 --> 00:06:14.000 If your kids grow up watching you drag yourself 00:06:14.000 --> 00:06:16.540 into the house at 9 .00 p .m. after dealing with 00:06:16.540 --> 00:06:19.160 a prolapse or a Birkin scraper. Yeah. And then... 00:06:19.319 --> 00:06:21.379 They see you sitting at the table stressing over 00:06:21.379 --> 00:06:23.600 cash flow because the butterfat dropped two points. 00:06:24.019 --> 00:06:27.360 They absorb that. They aren't blind. They see 00:06:27.360 --> 00:06:30.839 the cost. Not the financial cost, but the human 00:06:30.839 --> 00:06:33.139 cost. The human cost. That's a great way to put 00:06:33.139 --> 00:06:36.000 it. The quote in the article really hit home 00:06:36.000 --> 00:06:38.519 for me. It was a young person saying, I love 00:06:38.519 --> 00:06:40.959 the cows and the genetics, but... I'm not sure 00:06:40.959 --> 00:06:43.019 I want to live exactly like my parents did. And 00:06:43.019 --> 00:06:45.259 you can't blame them. You just can't. That is 00:06:45.259 --> 00:06:47.620 the first hurdle. Before you even get to the 00:06:47.620 --> 00:06:49.519 bank, you have to convince the next generation 00:06:49.519 --> 00:06:52.240 that this is a life worth living. It's true. 00:06:52.439 --> 00:06:55.199 If we don't address the lifestyle and the burnout, 00:06:55.459 --> 00:06:57.920 the rest of this conversation is academic because 00:06:57.920 --> 00:07:00.379 there won't be anyone to take over. A really 00:07:00.379 --> 00:07:02.560 good point. So we have the human element, the 00:07:02.560 --> 00:07:06.040 burnout, the low odds. Now let's pivot to the 00:07:06.040 --> 00:07:08.779 financial reality because this is where that 00:07:08.779 --> 00:07:11.569 fairness trap. really starts to form the numbers 00:07:11.569 --> 00:07:15.889 the numbers dairy has become intensely capital 00:07:15.889 --> 00:07:18.050 heavy capital heavy is a polite way of saying 00:07:18.050 --> 00:07:20.189 it's incredibly expensive just to exist in this 00:07:20.189 --> 00:07:23.410 industry right the source cites a 2021 agriculture 00:07:23.410 --> 00:07:26.589 journal paper it was looking at data from catalonia 00:07:26.589 --> 00:07:30.230 but it mirrors what we see in north america dairy 00:07:30.230 --> 00:07:33.689 carries the highest fixed capital land and buildings 00:07:34.389 --> 00:07:37.089 compared to almost any other ag sector. Think 00:07:37.089 --> 00:07:39.029 about it. If you're growing corn and soybeans, 00:07:39.329 --> 00:07:41.329 you need land and machinery. You need storage 00:07:41.329 --> 00:07:43.970 bins. Sure. But you don't need a milking parlor. 00:07:44.089 --> 00:07:46.889 You don't need complex manure handling systems 00:07:46.889 --> 00:07:49.709 for liquid waste. You don't need distinct facilities 00:07:49.709 --> 00:07:52.689 for calves, heifers, dry cows, and lactating 00:07:52.689 --> 00:07:54.889 cows. All those specialized expensive buildings. 00:07:55.149 --> 00:07:57.689 And in Canada, you have the massive capital cost 00:07:57.689 --> 00:08:00.009 of quota on top of all that. And land values 00:08:00.009 --> 00:08:03.660 are only going one way. Yep. USDA numbers. provincial 00:08:03.660 --> 00:08:06.860 numbers. They all show rising land values due 00:08:06.860 --> 00:08:09.680 to urban sprawl and competition from crop farmers. 00:08:09.959 --> 00:08:12.959 So on paper, the dairy farmer looks rich. The 00:08:12.959 --> 00:08:16.259 balance sheet is huge. Land rich, cash poor. 00:08:16.459 --> 00:08:18.459 It's the oldest cliche in farming because it's 00:08:18.459 --> 00:08:20.899 true. It is. And that is where the danger lies 00:08:20.899 --> 00:08:23.160 for succession. So let's look at the ROI, the 00:08:23.160 --> 00:08:24.779 return on assets. This is where it gets really 00:08:24.779 --> 00:08:27.819 interesting. The source brings in the 2024 Minnesota 00:08:27.819 --> 00:08:31.449 Finman Ride Report. Okay. Now, 2024 was actually 00:08:31.449 --> 00:08:34.309 a decent year for dairy compared to 2023. Net 00:08:34.309 --> 00:08:37.190 income was up. Milk price was up. It was a breather 00:08:37.190 --> 00:08:39.269 year. We finally caught a break. A little one. 00:08:39.450 --> 00:08:43.009 A little one. But, and this is a huge but, the 00:08:43.009 --> 00:08:45.830 average Minnesota farm return on assets was only 00:08:45.830 --> 00:08:50.070 2%. 2%. 2%. You know, if I went to a generic 00:08:50.070 --> 00:08:52.730 financial advisor in the city and said, I have 00:08:52.730 --> 00:08:54.909 a business with millions of dollars in liability, 00:08:55.250 --> 00:08:59.090 incredible physical risk, 365 day labor requirements, 00:08:59.269 --> 00:09:01.529 and I'm going to make a 2 % return on my assets. 00:09:01.809 --> 00:09:03.970 They would tell me to liquidate. They'd laugh 00:09:03.970 --> 00:09:05.370 you out of the office. They'd tell me to put 00:09:05.370 --> 00:09:07.480 the money in a high yield savings account. Right. 00:09:07.559 --> 00:09:10.440 You could get 4 % or 5 % in a safe bond right 00:09:10.440 --> 00:09:13.179 now with zero work. So why do farmers do it? 00:09:13.279 --> 00:09:15.379 Because it's not just an investment. It's a livelihood. 00:09:15.440 --> 00:09:17.759 It's a legacy. And honestly, on a cash flow basis, 00:09:17.980 --> 00:09:19.700 you can make a living. You can pay the bills. 00:09:19.820 --> 00:09:21.379 You can pay your bills. You can buy groceries. 00:09:21.820 --> 00:09:24.799 You can send kids to college. But 2 % leaves 00:09:24.799 --> 00:09:28.120 zero slack. It means the margin for error is 00:09:28.120 --> 00:09:31.259 razor thin. And that 2 % figure is the linchpin. 00:09:31.629 --> 00:09:33.830 It is the core reason why the fairness strategy 00:09:33.830 --> 00:09:36.970 fails. This is the heart of it. This is the core 00:09:36.970 --> 00:09:39.250 of the deep dive today. We need to follow the 00:09:39.250 --> 00:09:42.389 money to understand why treating your kids equally 00:09:42.389 --> 00:09:45.029 in the will destroys the business. Let's run 00:09:45.029 --> 00:09:47.649 the numbers. The article lays out a hypothetical 00:09:47.649 --> 00:09:51.029 400 cow scenario. And this is key. For everyone 00:09:51.029 --> 00:09:53.789 listening, even if you're milking 50 cows or 00:09:53.789 --> 00:09:57.450 5 ,000, the ratios hold up. The math scales. 00:09:57.769 --> 00:10:00.070 That's right. So here's the math. You have a 00:10:00.070 --> 00:10:03.779 400 cow herd. Based on Finbean averages, the 00:10:03.779 --> 00:10:06.580 asset breakdown looks something like this. You've 00:10:06.580 --> 00:10:08.879 got $2 million in land and buildings. Okay, that's 00:10:08.879 --> 00:10:11.100 reasonable. You've got $800 ,000 in cows and 00:10:11.100 --> 00:10:13.860 replacements. And you've got roughly $700 ,000 00:10:13.860 --> 00:10:16.539 in machinery. So total assets sitting around 00:10:16.539 --> 00:10:19.860 $3 .5 million. That sounds about right for a 00:10:19.860 --> 00:10:23.440 modern, reasonably equipped 400 cow dairy. Exactly. 00:10:23.600 --> 00:10:25.440 Now let's say the parents have four kids. One 00:10:25.440 --> 00:10:27.080 wants a farm. We'll call him the successor. The 00:10:27.080 --> 00:10:29.100 other three have moved away, got jobs in town. 00:10:29.220 --> 00:10:30.740 It's a typical story. Right. Maybe they come 00:10:30.740 --> 00:10:32.919 back for harvest, but they aren't owners. The 00:10:32.919 --> 00:10:35.720 parents want to be fair. And to them, fair means 00:10:35.720 --> 00:10:38.629 equal dollar value. Which is the default setting 00:10:38.629 --> 00:10:41.110 for most parents. I love my kids equally, so 00:10:41.110 --> 00:10:44.090 they get equal shares. It makes emotional sense. 00:10:44.309 --> 00:10:47.750 It does. So $3 .5 million divided by four kids 00:10:47.750 --> 00:10:52.409 is $875 ,000 per kid. Okay. So the successor 00:10:52.409 --> 00:10:56.429 gets their $875 ,000 share, which is great. But 00:10:56.429 --> 00:10:59.169 to keep the farm, they have to buy out the other 00:10:59.169 --> 00:11:01.409 three siblings. Exactly. The successor has to 00:11:01.409 --> 00:11:04.789 come up with cash to pay the other three. That 00:11:04.789 --> 00:11:09.450 is three times $875 ,000. That's a $2 .6 million 00:11:09.450 --> 00:11:12.769 debt. Just pause there for a second. The successor, 00:11:12.889 --> 00:11:15.269 who is likely already working for below market 00:11:15.269 --> 00:11:17.909 wages to help the farm succeed, now has to go 00:11:17.909 --> 00:11:20.889 to the bank and borrow. $2 .6 million just to 00:11:20.889 --> 00:11:22.710 keep the doors open. That's right. They aren't 00:11:22.710 --> 00:11:24.590 buying a new parlor. They aren't buying more 00:11:24.590 --> 00:11:26.870 land. They are buying the right to keep working. 00:11:27.070 --> 00:11:28.389 They're buying the equity that they probably 00:11:28.389 --> 00:11:30.549 helped build in the first place. Yes. And now 00:11:30.549 --> 00:11:32.529 here's where the cash flow crunch hits. Let's 00:11:32.529 --> 00:11:35.190 talk about that. Servicing a $2 .6 million debt 00:11:35.190 --> 00:11:37.669 principle and interest, you are looking at annual 00:11:37.669 --> 00:11:41.169 payments of roughly $250 ,000 to $300 ,000. Okay, 00:11:41.210 --> 00:11:43.129 let's translate that to the milk check. Put it 00:11:43.129 --> 00:11:45.269 in terms of farmer understands. Let's do it per 00:11:45.269 --> 00:11:48.659 cow. If you break that down by cow, That debt 00:11:48.659 --> 00:11:52.679 load is costing you $600 to $750 per cow per 00:11:52.679 --> 00:11:58.519 year. $600 to $750 per cow every single year. 00:11:58.639 --> 00:12:01.200 That is insane. And now you have to compare that 00:12:01.200 --> 00:12:03.600 to the profit. Yeah. The FinBeyond report showed 00:12:03.600 --> 00:12:06.159 that high profit herds, the best of the best, 00:12:06.159 --> 00:12:10.539 the top 20%, they made about $773 per cow in 00:12:10.539 --> 00:12:13.179 net return. Whoa, whoa, whoa. Let me just restate 00:12:13.179 --> 00:12:14.500 that to make sure everyone heard it. Please do. 00:12:14.639 --> 00:12:17.259 The profit you make on a cow in a good year is 00:12:17.259 --> 00:12:20.759 roughly $770. The debt payment you have to make 00:12:20.759 --> 00:12:23.580 just to pay off your siblings is $750. Correct. 00:12:23.679 --> 00:12:26.659 You have $20 left per cow. $20. For the entire 00:12:26.659 --> 00:12:29.590 year. That is the slow motion dispersal. You 00:12:29.590 --> 00:12:31.950 have taken 100 % of the profit out of the business 00:12:31.950 --> 00:12:34.490 and mailed it to the non -farming siblings? It's 00:12:34.490 --> 00:12:37.769 gone. That leaves $0 for replacing the skid sear 00:12:37.769 --> 00:12:40.450 when it dies, $0 for upgrading the ventilation, 00:12:40.850 --> 00:12:44.990 $0 for fresh cow protocols. And, God forbid, 00:12:45.190 --> 00:12:48.370 milk prices drop or feed costs spike. Right. 00:12:48.490 --> 00:12:50.669 If you have a bad year, you're underwater immediately. 00:12:51.500 --> 00:12:53.960 You're cannibalizing equity just to make the 00:12:53.960 --> 00:12:55.860 buyout payments. This is why I called it a death 00:12:55.860 --> 00:12:58.779 sentence earlier. You cannot expect a business 00:12:58.779 --> 00:13:01.620 generating a 2 % return on assets to pay out 00:13:01.620 --> 00:13:05.179 75 % of its equity at full market value. The 00:13:05.179 --> 00:13:08.120 math simply does not work. It's mathematically 00:13:08.120 --> 00:13:11.139 impossible. So the parents feel good because 00:13:11.139 --> 00:13:14.019 they were fair. The non -farming kids feel good 00:13:14.019 --> 00:13:16.000 because they got a nice check. And the farming 00:13:16.000 --> 00:13:18.769 kid goes bankrupt in five years. Or... More likely, 00:13:18.909 --> 00:13:21.090 they struggle for 10 years, living in poverty, 00:13:21.210 --> 00:13:23.809 letting the facilities degrade until they finally 00:13:23.809 --> 00:13:26.350 burn out and sell. The slow bleed. The slow bleed. 00:13:26.490 --> 00:13:30.169 Yeah. So how do we reframe fairness? The source 00:13:30.169 --> 00:13:32.750 material references Farm Credit Canada and a 00:13:32.750 --> 00:13:35.029 specialist named Rick Ruseboom. He has a great 00:13:35.029 --> 00:13:37.350 line. What is it? One million dollars in assets 00:13:37.350 --> 00:13:40.509 is not one million dollars in cash. That is the 00:13:40.509 --> 00:13:43.090 crucial distinction. That needs to be on a billboard. 00:13:43.210 --> 00:13:45.850 It does. The non -farming kids need to understand 00:13:45.850 --> 00:13:47.769 that their sibling isn't inheriting a lottery 00:13:47.769 --> 00:13:50.549 ticket. No. They're inheriting a job, a very 00:13:50.549 --> 00:13:53.190 expensive high -risk job. And a mountain of responsibility. 00:13:53.789 --> 00:13:56.750 The article also talks about sweat equity. This 00:13:56.750 --> 00:13:59.330 is a huge piece of the puzzle. Huge. We need 00:13:59.330 --> 00:14:01.929 to acknowledge that the child who stayed often 00:14:01.929 --> 00:14:05.149 accepted lower wages for years, contributing 00:14:05.149 --> 00:14:07.919 to the growth of those assets. Absolutely. If 00:14:07.919 --> 00:14:10.179 the farming son or daughter has been working 00:14:10.179 --> 00:14:12.600 for $40 ,000 a year when they could have been 00:14:12.600 --> 00:14:15.320 making $80 ,000 in town as a heavy equipment 00:14:15.320 --> 00:14:19.019 operator, that difference is an investment they 00:14:19.019 --> 00:14:21.940 made in the farm. That $3 .5 million asset base 00:14:21.940 --> 00:14:24.600 exists partly because of their underpaid labor. 00:14:24.860 --> 00:14:27.440 To turn around and charge them full market value 00:14:27.440 --> 00:14:29.620 for it is actually unfair. It's charging them 00:14:29.620 --> 00:14:31.679 twice for the same equity. That's a fantastic 00:14:31.679 --> 00:14:33.440 point. You're buying what you already helped 00:14:33.440 --> 00:14:36.320 build. Exactly. So this brings us to the solution 00:14:36.320 --> 00:14:38.779 phase. We've identified the problem. The math 00:14:38.779 --> 00:14:42.820 doesn't work. But the 16 .5 % of farms that survive, 00:14:43.259 --> 00:14:46.840 they do something different. They have to. They 00:14:46.840 --> 00:14:49.120 use different structures. Right. You don't have 00:14:49.120 --> 00:14:51.639 to just hand over the deed and a massive mortgage. 00:14:52.240 --> 00:14:54.559 The most common structure the article highlights, 00:14:54.759 --> 00:14:56.899 especially in Canada and increasingly in the 00:14:56.899 --> 00:14:59.580 U .S., is separating the business into a holding 00:14:59.580 --> 00:15:01.860 company and an operating company. The two -company 00:15:01.860 --> 00:15:03.620 model. Let's break that down. How does it work? 00:15:03.899 --> 00:15:06.730 Okay. Think of it as two separate buckets. Bucket 00:15:06.730 --> 00:15:09.669 A is the holding company. This is where you put 00:15:09.669 --> 00:15:13.250 the heavy assets, the land, the buildings, and 00:15:13.250 --> 00:15:16.570 in Canada, the quota. The parents or the family 00:15:16.570 --> 00:15:19.649 trust own this bucket. So the parents keep their 00:15:19.649 --> 00:15:22.269 name on the land. That provides them security. 00:15:22.590 --> 00:15:24.950 Exactly. It's their retirement fund, their landlords. 00:15:25.250 --> 00:15:27.909 Then you have bucket B, the operating company. 00:15:28.169 --> 00:15:30.210 And what's in that bucket? This company owns 00:15:30.210 --> 00:15:33.470 the cows, the feed, the small machinery, and 00:15:33.470 --> 00:15:36.639 the checking account. The successor buys this 00:15:36.639 --> 00:15:38.840 company. Ah, so they're not buying the land. 00:15:39.059 --> 00:15:41.159 Not right away. Why is that better? Because the 00:15:41.159 --> 00:15:43.100 operating company is where the cash flow is. 00:15:43.120 --> 00:15:45.139 It's where the turnover happens. The successor 00:15:45.139 --> 00:15:47.460 can afford to buy the cows in the feed because 00:15:47.460 --> 00:15:50.779 those assets generate immediate cash. They aren't 00:15:50.779 --> 00:15:53.320 drowning in the debt of buying $2 million worth 00:15:53.320 --> 00:15:56.100 of land that has a 2 % return. So the successor 00:15:56.100 --> 00:15:58.860 runs the show, owns the cows, pays the bills. 00:15:59.210 --> 00:16:01.470 What is the relationship with the holding company? 00:16:01.690 --> 00:16:04.190 The operating company pays rent to the holding 00:16:04.190 --> 00:16:06.370 company. Like any other business renting a building. 00:16:06.610 --> 00:16:09.850 Precisely. That rent becomes the parent's retirement 00:16:09.850 --> 00:16:13.029 income. It's a clean, business -like transaction. 00:16:13.470 --> 00:16:16.110 That makes so much sense. The successor focuses 00:16:16.110 --> 00:16:19.309 their capital on high -turnover assets, cows, 00:16:19.629 --> 00:16:22.830 butterfat, managing somatic cell counts, rather 00:16:22.830 --> 00:16:25.250 than serving a massive mortgage on dirt. And 00:16:25.250 --> 00:16:27.600 it allows for a gradual transition. Eventually, 00:16:27.740 --> 00:16:29.539 the successor might buy shares in the holding 00:16:29.539 --> 00:16:32.460 company over 20 years, or maybe upon the parents 00:16:32.460 --> 00:16:35.200 passing, the non -farming kids inherit shares 00:16:35.200 --> 00:16:37.360 in the land company and just collect rent. Like 00:16:37.360 --> 00:16:39.860 passive investors. Exactly. While the farming 00:16:39.860 --> 00:16:42.259 kid runs the operating company, it separates 00:16:42.259 --> 00:16:44.000 the business of farming from the business of 00:16:44.000 --> 00:16:46.220 owning real estate. That distinction is key, 00:16:46.360 --> 00:16:48.860 and it leads perfectly into the next big decision 00:16:48.860 --> 00:16:52.080 the survivors make, building a leader. The article 00:16:52.080 --> 00:16:54.120 makes a strong point that you can't just treat 00:16:54.120 --> 00:16:56.919 the successor as a grunt for 20 years and then 00:16:56.919 --> 00:16:59.360 hand them the keys. This is a pet peeve of mine. 00:16:59.600 --> 00:17:02.179 I can imagine. You see it all the time. The boy 00:17:02.179 --> 00:17:05.980 is 45 years old, but dad still signs every check 00:17:05.980 --> 00:17:08.279 and decides when to cut the hay. Right. That 00:17:08.279 --> 00:17:10.880 is not a succession plan. That is a servitude 00:17:10.880 --> 00:17:14.779 plan. The source cites a 2018 rural sociology 00:17:14.779 --> 00:17:18.079 article from the UK that talks about the value 00:17:18.079 --> 00:17:21.529 of off -farm experience. Yes. It suggests that 00:17:21.529 --> 00:17:24.650 young farmers who leave and come back bring an 00:17:24.650 --> 00:17:27.529 entrepreneurial mindset. I cannot stress this 00:17:27.529 --> 00:17:29.769 enough. If you are a young person listening to 00:17:29.769 --> 00:17:33.529 this or a parent, get off the farm. Go work for 00:17:33.529 --> 00:17:36.150 someone else. Why is that so valuable? Is it 00:17:36.150 --> 00:17:38.029 just about seeing how others do it? It's about 00:17:38.029 --> 00:17:40.589 accountability. When you work for your dad and 00:17:40.589 --> 00:17:42.630 you mess up, you might get yelled at at dinner, 00:17:42.690 --> 00:17:44.529 but you probably won't get fired. Good point. 00:17:44.670 --> 00:17:47.089 When you work for a stranger, you learn real 00:17:47.089 --> 00:17:49.890 accountability. But more importantly, you learn 00:17:49.890 --> 00:17:51.990 different systems. The article gives some great 00:17:51.990 --> 00:17:54.690 examples of that. It does. Working as a herdsman 00:17:54.690 --> 00:17:56.470 elsewhere, you might learn totally different 00:17:56.470 --> 00:17:59.109 fresh cow protocols. Right. Or a different breeding 00:17:59.109 --> 00:18:02.430 strategy. Exactly. Go work on a 2 ,000 cow dairy. 00:18:03.049 --> 00:18:06.130 See how they manage transition cows. See how 00:18:06.130 --> 00:18:08.910 they handle employee scheduling. Or go work for 00:18:08.910 --> 00:18:10.990 a genetics or nutrition company. And learn the 00:18:10.990 --> 00:18:13.599 business side. Learn to read components. Learn 00:18:13.599 --> 00:18:16.480 to calculate cost per hundredweight. The Brazilian 00:18:16.480 --> 00:18:18.980 study mentioned calls this absorptive capacity, 00:18:19.440 --> 00:18:22.519 the ability to bring new knowledge home. It's 00:18:22.519 --> 00:18:24.799 seeing the world outside your own lane. If you 00:18:24.799 --> 00:18:26.980 only know how your dad did it, you will only 00:18:26.980 --> 00:18:29.660 do what your dad did. And in this market, that's 00:18:29.660 --> 00:18:31.700 not enough. You have to innovate. You need to 00:18:31.700 --> 00:18:34.099 be able to come home and say, hey, I worked at 00:18:34.099 --> 00:18:36.920 a place that used sand bedding and their somatic 00:18:36.920 --> 00:18:39.559 cell count was half of ours. Here's the math 00:18:39.559 --> 00:18:41.980 on why we should switch. That is leadership. 00:18:42.220 --> 00:18:44.839 And once they come back, the article insists 00:18:44.839 --> 00:18:48.299 on a trial management period. Yes. Not just welcome 00:18:48.299 --> 00:18:50.299 home. Here's a shovel. But here are the keys 00:18:50.299 --> 00:18:52.160 to a department. This is huge for the lenders, 00:18:52.180 --> 00:18:55.460 too. The article outlines a two year trial. You 00:18:55.460 --> 00:18:57.539 don't just say you're in charge. You say, OK, 00:18:57.599 --> 00:18:59.859 for the next two years, you are in charge of 00:18:59.859 --> 00:19:02.960 fresh cows. And you track specific metrics. The 00:19:02.960 --> 00:19:05.039 source suggests. Tracking transition disorders, 00:19:05.420 --> 00:19:08.119 early cull rates, and peak milk. Real numbers, 00:19:08.259 --> 00:19:10.900 tangible results. If the early cull rate spikes 00:19:10.900 --> 00:19:12.960 under their watch, you have a problem to solve. 00:19:13.119 --> 00:19:16.240 If peak milk goes up, you have a win. Hand them 00:19:16.240 --> 00:19:18.559 the cropping. Right. You decide the seed varieties, 00:19:18.900 --> 00:19:21.160 you manage the harvest crew, then we measure 00:19:21.160 --> 00:19:24.160 forage quality and cost per ton of dry matter. 00:19:24.420 --> 00:19:26.579 It validates that the successor isn't just a 00:19:26.579 --> 00:19:30.019 last name. They're a manager. Exactly. When you 00:19:30.019 --> 00:19:32.420 walk into the bank for that succession loan and 00:19:32.420 --> 00:19:35.559 you can show a binder that says, in the two years 00:19:35.559 --> 00:19:38.400 my son ran the cropping program, our relative 00:19:38.400 --> 00:19:41.140 feed value went up 15 points and our cost per 00:19:41.140 --> 00:19:43.160 ton went down. The banker is going to listen. 00:19:43.299 --> 00:19:44.940 The banker is going to say, where do I find? 00:19:45.019 --> 00:19:47.099 It's de -risking the whole proposition for them. 00:19:47.220 --> 00:19:49.359 Totally. Let's look at the bigger picture now. 00:19:49.440 --> 00:19:51.700 We have the structure. We have the leadership 00:19:51.700 --> 00:19:54.940 training. But who helps putting this all together? 00:19:55.380 --> 00:19:58.359 This can be overwhelming. It's a lot. The source 00:19:58.359 --> 00:20:01.420 introduces a concept from Ireland, from TGASC, 00:20:01.460 --> 00:20:05.180 called multi -actor succession teams. I love 00:20:05.180 --> 00:20:08.700 this concept because right now in North America, 00:20:08.779 --> 00:20:11.579 the typical succession planning process is a 00:20:11.579 --> 00:20:14.579 mess of mixed signals. How does it usually go? 00:20:14.700 --> 00:20:17.220 Walk me through the disaster scenario. You go 00:20:17.220 --> 00:20:18.960 to your accountant and they say, do this to save 00:20:18.960 --> 00:20:21.140 taxes. Then you go to your lawyer and they say, 00:20:21.180 --> 00:20:23.559 do this to protect the estate. Then you go to 00:20:23.559 --> 00:20:25.359 the lender and they look at the plan and say, 00:20:25.500 --> 00:20:27.839 we can't finance this. There is no cash flow. 00:20:28.000 --> 00:20:29.900 And the family is stuck in the middle playing 00:20:29.900 --> 00:20:32.180 telephone between all these advisors. Exactly. 00:20:32.400 --> 00:20:35.259 The TGASC model puts them all in one room at 00:20:35.259 --> 00:20:38.079 the same time. The accountant, the lawyer, the 00:20:38.079 --> 00:20:41.579 lender, and crucially, a family coach or facilitator. 00:20:41.700 --> 00:20:44.460 The benefit seems obvious. You stop the he said, 00:20:44.519 --> 00:20:47.089 she said. And you get a reality check. The lawyer 00:20:47.089 --> 00:20:49.490 might draft a beautiful will that splits the 00:20:49.490 --> 00:20:52.289 assets four ways, and the lender can speak up 00:20:52.289 --> 00:20:54.349 right there and say, if you sign that, I will 00:20:54.349 --> 00:20:56.269 have to foreclose on the farm the day you die 00:20:56.269 --> 00:20:58.329 because the business cannot service that debt. 00:20:58.630 --> 00:21:01.009 You need that conflict to happen in the planning 00:21:01.009 --> 00:21:03.369 room, not at the funeral home. That's powerful. 00:21:04.170 --> 00:21:07.009 It forces a practical solution, not just a legal 00:21:07.009 --> 00:21:10.130 or tax one. It forces a viable solution. That 00:21:10.130 --> 00:21:12.910 brings up the toughest scenario of all. What 00:21:12.910 --> 00:21:15.849 if there is no successor? What if the kids, despite 00:21:15.849 --> 00:21:19.150 your best efforts, just don't want it? It happens. 00:21:19.529 --> 00:21:22.589 And it is happening more often. But the default 00:21:22.589 --> 00:21:25.309 reaction is usually panic, followed by a total 00:21:25.309 --> 00:21:27.849 dispersal sale. The auctioneer comes in and everything 00:21:27.849 --> 00:21:30.230 goes. Everything. The article suggests there 00:21:30.230 --> 00:21:32.589 are other ways to exit with your legacy intact. 00:21:32.990 --> 00:21:35.589 Like what? It mentions things like land access 00:21:35.589 --> 00:21:39.170 policy incentives and the transition incentives 00:21:39.170 --> 00:21:41.690 program. Okay, what does that mean in plain English? 00:21:42.190 --> 00:21:44.190 It means there are young people out there desperate 00:21:44.190 --> 00:21:46.450 to farm who don't have the capital to buy in. 00:21:46.549 --> 00:21:48.509 You can look at long -term leases. You can look 00:21:48.509 --> 00:21:51.650 at a staged sale to a key employee. Maybe that 00:21:51.650 --> 00:21:54.769 herdsman who has been with you for 15 years and 00:21:54.769 --> 00:21:57.430 treats the cows like his own. So phasing out 00:21:57.430 --> 00:22:00.630 ownership while keeping the land. Yes. Maybe 00:22:00.630 --> 00:22:03.450 you sell the cows and machinery to a young neighbor, 00:22:03.589 --> 00:22:06.940 but you keep the land. and sign a 20 -year lease. 00:22:07.200 --> 00:22:09.559 You get the rental income, the neighbor gets 00:22:09.559 --> 00:22:12.539 a land base without a $2 million mortgage, and 00:22:12.539 --> 00:22:16.099 your land stays in production. It's not the dynasty 00:22:16.099 --> 00:22:18.799 you might have dreamed of. No, but it keeps the 00:22:18.799 --> 00:22:21.380 farm alive. It keeps your legacy in the barn. 00:22:21.680 --> 00:22:24.099 We have covered a lot of ground here, from the 00:22:24.099 --> 00:22:28.700 brutal 16 .5 % statistic to the fairness trap 00:22:28.700 --> 00:22:31.539 to the holding company structure. A lot to chew 00:22:31.539 --> 00:22:33.720 on. It is. Now, I want to get tactical. Let's 00:22:33.720 --> 00:22:35.470 do it. All right. A farmer is listening to this 00:22:35.470 --> 00:22:37.250 right now. They just finished milking. They're 00:22:37.250 --> 00:22:39.869 driving to the feed store. What are the three 00:22:39.869 --> 00:22:42.289 concrete things they need to do to avoid being 00:22:42.289 --> 00:22:45.450 a slow motion dispersal? Okay. I've broken this 00:22:45.450 --> 00:22:48.509 down into immediate, medium, and long term. Perfect. 00:22:48.609 --> 00:22:51.210 Start with immediate. This week? Immediate. The 00:22:51.210 --> 00:22:54.970 agenda and the question. First, put succession 00:22:54.970 --> 00:22:57.430 on the official meeting agenda, not the dinner 00:22:57.430 --> 00:22:59.390 table chat, the business meeting. Write it down. 00:22:59.509 --> 00:23:02.150 Make it official. Make it official. Second, the 00:23:02.150 --> 00:23:04.230 next time you see your accountant or lawyer, 00:23:04.509 --> 00:23:08.430 look them in the eye and ask, how many farm successions 00:23:08.430 --> 00:23:10.730 have you structured in the last five years? That 00:23:10.730 --> 00:23:13.369 is a bold question. It is necessary. If they 00:23:13.369 --> 00:23:16.829 say, oh, one or two, or we do mostly standard 00:23:16.829 --> 00:23:20.250 wills, you need to find a specialist. You wouldn't 00:23:20.250 --> 00:23:22.549 let a foot trimmer do surgery on a twisted stomach. 00:23:23.029 --> 00:23:25.349 Don't let a generalist lawyer do surgery on your 00:23:25.349 --> 00:23:27.769 multi -million dollar business. Oh, good analogy. 00:23:28.029 --> 00:23:31.119 Okay, medium term. Three to six months out. Medium 00:23:31.119 --> 00:23:34.599 term. The timeline and the fair talk. Sketch 00:23:34.599 --> 00:23:37.400 out the timeline. Write down your age and your 00:23:37.400 --> 00:23:40.140 successor's age. Identify a step -back date. 00:23:40.299 --> 00:23:43.220 Be honest. When does dad stop signing checks? 00:23:43.519 --> 00:23:46.259 Put a date on the calendar. Yes. And then have 00:23:46.259 --> 00:23:48.500 the fair versus equal conversation before the 00:23:48.500 --> 00:23:51.220 lawyers drop the papers. Ask the non -farming 00:23:51.220 --> 00:23:52.980 kids what fair looks like to them. You might 00:23:52.980 --> 00:23:54.759 be surprised. They might not want what you think 00:23:54.759 --> 00:23:56.500 they want. They might just want a cottage on 00:23:56.500 --> 00:23:58.940 the lake or help with a down payment on a house. 00:23:59.099 --> 00:24:00.779 They might not want to bankrupt their brother. 00:24:01.099 --> 00:24:03.740 Great point. And long term, one to two years. 00:24:04.039 --> 00:24:07.640 Long term. Structure and metrics. Document the 00:24:07.640 --> 00:24:10.799 leadership. Assign specific areas like we talked 00:24:10.799 --> 00:24:13.819 about. reproduction or cropping, and track the 00:24:13.819 --> 00:24:17.039 KPIs. Prove the successor can run it. Build that 00:24:17.039 --> 00:24:20.400 binder for the bank and investigate the two -company 00:24:20.400 --> 00:24:22.720 structure. Talk to that specialist you found 00:24:22.720 --> 00:24:24.480 about separating the holding company from the 00:24:24.480 --> 00:24:27.079 operating company. Build a structure that protects 00:24:27.079 --> 00:24:29.319 the parent's retirement without strangling the 00:24:29.319 --> 00:24:31.960 successor's cash flow. That is a powerful checklist. 00:24:32.160 --> 00:24:35.559 It moves this from a vague worry to a manageable 00:24:35.559 --> 00:24:38.160 project. That's the goal. We have to stop treating 00:24:38.160 --> 00:24:40.460 succession like a taboo subject, like it's about 00:24:40.460 --> 00:24:43.259 death. It's a business process. Treat it like 00:24:43.259 --> 00:24:45.599 one. This has been an incredibly eye -opening 00:24:45.599 --> 00:24:48.779 deep dive. The difference between the 16 .5 % 00:24:48.779 --> 00:24:52.400 who make it and the rest, it isn't luck. No, 00:24:52.480 --> 00:24:54.680 it's planning. It's structure. It's having these 00:24:54.680 --> 00:24:56.799 tough conversations. Absolutely. Remember, if 00:24:56.799 --> 00:24:59.099 your succession plan relies on a 2 % ROA business 00:24:59.099 --> 00:25:02.039 paying off 100 % of its equity, you aren't planning 00:25:02.039 --> 00:25:04.650 a legacy. You're planning a sale. For the full 00:25:04.650 --> 00:25:06.569 breakdown and more straight talking analysis, 00:25:06.869 --> 00:25:10.750 head to www .thebullvine .com. Subscribe wherever 00:25:10.750 --> 00:25:14.029 you get your podcasts. We are out with new episodes 00:25:14.029 --> 00:25:16.630 every day. Keep your boots clean and your pencil 00:25:16.630 --> 00:25:18.589 sharp. Coming up next, we're going to be talking 00:25:18.589 --> 00:25:21.430 about genomic selection. Is it hype or is it 00:25:21.430 --> 00:25:23.369 the only way to stay competitive? You won't want 00:25:23.369 --> 00:25:24.490 to miss it. Thanks for listening.